Pacific Views

How the Bush Economics Trickle Down to the States

Guest post by James R. MacLean
How exactly are federal administration policies creating fiscal crises in the states? This paper from the Center on Budget and Policy Priorities outlines a few important ways in which the White House’s eccentric fiscal stewardship had made itself felt on the state houses. Estimates of the impact have been made by the National Conference of State Legislatures (NCSL) for a four-year period of fiscal crisis (FY2002-2005). While few people have accused the President of actually casuing the fiscal crisis, we can truthfully say that the problem has been created by the ideological bedfellows of Bush and Delay in several state legislatures.

• State income tax rates are tied to the federal income tax rates. When Congress approved the Bush tax cuts, the cuts automatically were matched by the state codes. Several states have “de-linked” these, but according to the report the cuts echoed to the tune of $10 billion.
  
• Federal prohibition of internet sales taxes is of long standing and quite popular. But it is actually more expensive yet—it is expected to cost states $60 billion during the four-year period of the fiscal crisis.
  
• The federal estate tax repeal was enacted by a net withdrawal of most of the revenues to the states
  
• Unfunded mandates (e.g., No Child Left Behind, Homeland Security, Individuals with Disabilities Act, Help America Vote Act—see this listing by the NCSL; here is a breakdown of program costs) represent a lion’s share of the extra burden to the states—a total of $82 billion over the four fiscal years of the budget crisis.
  
• a growing share of the cost of health care to low-income elderly and disabled people has been shifting from Medicare, which is a federal program, to Medicaid, a program for which states bear an average of 43 percent of the costs. This has occurred largely because changes in medical practice have resulted in shorter hospital stays and increased use of prescription drug therapies.

This has inflicted shock therapy on the states in an era of hard-core “libertian” market fundamentalism winning the upper hand. Ideologues who have extorted tax cuts from legislatures on pain of shutting down state governments tend to insist their highly destructive agenda is the result of a deeply-felt populist aversion to taxes. It is no such thing. People don’t favor taxes if they don’t expect to benefit from them. The constant drumbeat of sagging government services has made voters develop a terrible alarm about services they can no longer afford. The soaring costs of health care aren’t a public extravagance; neither is education:

These deficits have not, as some assert, stemmed primarily from a state spending spree in the 1990s. State spending growth in the 1990s (adjusted for inflation and population changes), was low by historical standards; it was lower than or equal to spending growth in every other decade since World War II. (See Figure 2.) Furthermore, most of the growth in state spending that did occur during the 1990s was in education, health care, and corrections — areas where costs were rising, need was growing, and/or voters were demanding improvements. Nine out of ten new state dollars (adjusted for inflation) went into these three areas.

[…]

State budget cuts have been widespread. Some 18 states cut eligibility for public health insurance for fiscal year 2004 (primarily through cuts in Medicaid and/or the State Children’s Health Insurance Program), and 25 states did so for fiscal year 2003. Most of these cuts involved measures to scale back health care coverage for children and parents in families in which the parents work at low-wage jobs. For example, cutbacks in Texas will end coverage under the Children’s Health Insurance program for nearly 170,000 children in low-income working families, while Connecticut reduced Medicaid eligibility for parents with incomes between 100 percent and 150 percent of the poverty line, with about 19,000 parents affected. Some 21 states either imposed or began charging higher copayments in fiscal year 2004 for health care services under these programs; the previous year, 17 states added or increased copayments.

The ideological arguments such as those underlying Colorado’s TABOR, are that revenues per capita should remain eternally the same, regardless of economic growth, demographic changes, or any other consideration. Such measures represent administration by religion. Civil servants are a suitable candidates for the auto-da-fé.

Allow me to return to an initial assertion I made—something I wanted to explain in somewhat greater detail. The ideological bedfellows of whom I speak include the likes of California State Sen. Tom McClintock (R-Thousand Oaks) and Assemblyman Jay Lasuer (R-77), who have taken full advantage of the unusual provisions in the California Constitution that allow a third of the legislature to block the passage of a budget. Obsessed with slashing taxes and winning increased spending for their own districts, the GOP in my particular state has succeeded in bringing the state to its knees. Editorials at their websites are couched in folksy, populist rhetoric; they could all have been written by the same author. The acrimonious use of the term “liberal” is familiar to listeners of Rush Limbaugh, as are talking points taking from the Cato Institute (with the same factual errors). But now that Schwarzenegger is governor, there’s little doubt that taxes will be increased to recoup the effects of GOP-inflicted concessions. Let the record show that California’s fiscal crisis is the worst (per capita) in the nation.

Finally, for those of you wondering where Bush’s awesome warchest comes from, I was eager to furnish you with this link to Open Secrets, a stupendously helpful site with the latest news on campaign finance data.

Updated 10/17/03 -- Merrill Lynch, the financial services giant, tops the list of contributors to President Bush's re-election campaign through September of this year, with $364,000 in donations from employees and their immediate family members, according to a preliminary study of third-quarter campaign finance filings by the nonpartisan Center for Responsive Politics.

Merrill Lynch, whose CEO, Stan O'Neal, is listed by the Bush campaign as a "Ranger" who has raised at least $200,000, also topped the list of Bush contributors after the second quarter of this year. The company's total as of June 30 was more than $282,000, which already exceeded that of Bush's top contributor for the entire 2000 election cycle. Credit card giant MBNA led all organizations with $240,675 in individual and PAC contributions for Bush's first presidential bid.

The article includes detailed explanations of where the Democratic challengers have received their money. Rueful memo to self: a Democratic victory in 2004 will be a cause for great rejoicing, but there’s a very long road to hoe after that.

[Thank you James, for a really interesting and relevant post today. Especially as the Republicans are cheering the tremendous good news that our economy is getting better and Bush's tax cuts are helping. Not.]

Posted by Mary at October 21, 2003 01:50 PM | TrackBack