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April 30, 2012 12:26 PM Oh, Yeah, the States

By Ed Kilgore

Zachery Goldfarb of WaPo has an important article today on the element of national economic policy that many in the chattering classes happily and consistently ignore: the forced austerity policies of state and local governments. The raw numbers really are pretty shocking:

Today, as Obama seeks another term, the heavy job losses at the state and local level remain a significant economic concern. His response at different moments underscores how the president has sometimes fought hard against the political odds for policies he thinks crucial and at other times relented when the chances of success seemed low.
Since the beginning of his term, state and local governments have shed 611,000 employees — including 196,000 educators — according to government statistics. Unlike the recovery in private-sector employment that Obama and his reelection campaign often cite — with businesses adding 4 million jobs since hiring hit its low point in 2010 — the jobs crisis at the state and local level has continued throughout his term.

And that’s just the negative impact on jobs attributable to direct hiring and firing by state and local governments: not the indirect effect of cutbacks in the services these former employees used to provide, much less cutbacks in the counter-cyclical programs offering financial assistance to people struggling with a poor economy, which, in our system, are largely administered by the states.

Most of Goldfarb’s piece is about the on-again, off-again, focus of the Obama administration on assistance to state and local government to offset or prevent employment reductions, particularly in education. He attributes most of the “off-again” tendencies to opposition from congressional Republicans. That is entirely true, insofar as Republicans these days (even at the non-federal level) habitually refer to federal aid to state and local governments as if it were some form of welfare or “bail-out” rather than an effort to contribute to shared public responsibilities.

But there is a more pervasive tendency in Washington simply to treat lower levels of government as provicincial bailiwicks not much worth talking about unless they are sponsoring presidential primaries or casting electorate votes or maybe reshaping congressional districts. During the lengthy debate over economic stimulus proposals in 2009, you could be relatively well-read and never know that the bulk of “state and local aid” in the Obama proposal was for a Medicaid “super-match” aimed (with only mixed success) at keeping states from slashing benefits or eligibility precisely when the ranks of the un- and under-employed were most likely to lose health insurance. To this day discussions of ObamaCare often omit any but a footnoted reference to the role of an expanded Medicaid program in extending health care to the previously uninsured.

This blind spot extends to all sorts of other elements of national policy. Conservatives are constantly complaining that poor people don’t pay federal income taxes (probably as a build-up to “tax reform” proposals that will reduce or kill the Earned Income Tax Credit). Progressives often note that this is extremely misleading because the working poor do pay highly regressive federal payroll taxes. But that tax burden is actually dwarfed by what low-income people pay in state and local taxes, as the Center for Budget and Policy Priorities—a Beltway oasis of interest in how the policies of different levels of government interact—has pointed out:

[L]ow-income households as a group do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households paid an average of 4.0 percent of their incomes in federal taxes in 2007, the latest year for which these data are available — not an insignificant amount given how modest these households’ incomes are; the poorest fifth of households had average income of $18,400 in 2007. The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10.6 percent of their incomes in federal taxes.
[But] even these figures greatly understate low-income households’ total tax burden because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2011.
When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.

Conservatives do, of course, yap about the states all the time, but more as an abstraction: as a place where federal governing responsibilities can be sent to die. The actual, specific impact of, say, the Ryan/Romney proposal to turn Medicaid into a “block grant” with steadily declining federal funding is rarely discussed amidst the lofty discussion of federalism or “subsidiarity.”

Widespread publicity over the last couple of years about state-level battles over collective bargaining rights, access to abortion or contraceptive services, and restrictions on the right to vote, have significantly raised awareness among progressives that the most important policy developments don’t necessarily occur in Washington. But the interest level should become more than episodic.

Back in 2009 Harold Pollack and I wrote an article for the New York Times’ Economix blog arguing that policymakers and journalists alike begin thinking in terms of a national budget in which the combined resources and responsibilities of all levels of government be taken into account simultaneously. It’s still a good idea. I just hope it doesn’t take a national calamity driven by GOP “federalism” proposals to give it traction.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • howard on April 30, 2012 12:42 PM:

    i argued in 2009, and i'll argue again today, that there was one policy option that could conceivably have gotten gop support for state aid (and been a good economic choice as well).

    my proposal is that for every state sales tax, we take the maximum revenues it ever achieved (presumably 2007) and provide them aid at maximum + inflation if they would waive their sales tax for the duration.

    this would: a.) have prevented state cutbacks as sales tax revenues fall; b.) been a consumption shot-in-the-arm, since everything would be "on sale;" and c.) since sales taxes are regressive in nature, waiving them for the duration is progressive, since that's a significant differential to a median income household and irrelevant to a high-income household.

  • lou on April 30, 2012 1:04 PM:

    Add to the direct losses of government employees, the losses to contractors and service providers who do business with state and local governments. This is a significant part of local economies. Many of the conservatives do not realize the extent to which government spending does get cycled through the local economies and paid back to the local, state, and federal governments in revenues. I might add that many of these contractors and providers are self employed and paying the double taxation on Medicare, Medicaid and Social Security. My business with the state has hit the skids and I am venturing into early retirement as a result. Guess what? My contributions to the federal treasury are just about to end.

  • Ron Byers on April 30, 2012 2:25 PM:

    State and local governments don't seem to be adding those employees back either. Instead red state legislatures everywhere are handing out giant tax breaks to corporations.

  • dalloway on April 30, 2012 2:26 PM:

    Erm, shouldn't somebody point out that while Republicans are mouthing concern for the economy at the national level, they're doing everything they can at the state and local levels to tank it? Shouldn't someone ask if this is what Mitch McConnell meant when he urged Republicans to do everything possible to see that Obama fails?

  • Peter C on April 30, 2012 2:32 PM:

    When Conservatives claim that we've tried Keynesian economics with the stimulus and it didn't work, they ignore not only the argument that the stimulus was too small, but also the fact that much of the power of the stimulus was actively and intentionally sabotaged by Republicans at the state level.

    Many of the state budgets which had temporarily been bolstered by the 'grants to states' portion of the stimulus we given away as tax breaks (Scott Walker's budget in Wisconsin), and many large infrastructure projects were cancelled by Republican governors (the ARC tunnel in NJ and high speed rail in FL and across the midwest).

    The stimulus was already a compromise (since it contained tax cuts, direct aid to states AND infrastructure projects), but when the jobs portion (infrastucture) is cut off at the states, it is MUCH harder for the demand portion (tax cuts and aid to states) to create a sustainable boost. The stimulus failed because the Republicans kept it from working as a way to accumulate political power.

    Obama may have not succeeded at doing great good (as he planned and intended) but it was mostly because the Republicans were willing and eager to do great harm. And, with the Romney/Ryan plan they are openly declaring their intention to do further more extensive harm while simultaneously benefitting Romney personnally.

  • JEA on April 30, 2012 2:52 PM:

    Does "196,000 educators" actually mean teachers, or does it include administrators who teach nobody and get paid for filling out useless paperwork???

  • Texas Aggie on April 30, 2012 3:19 PM:

    JEA, looking at Texas as representative of the national situation, the number of administrators laid off is absolutely swamped by the number of teachers who are now looking for jobs. There just is no comparison.

  • JR on April 30, 2012 3:54 PM:

    JEA, second Texas Aggie, except I'm in Chicago. Since administrators are rarely (if ever) union members, and their numbers are dwarfed by the number of teachers, they're rarely the targets of cuts. In fact, school administrators are often the first to receive financial rewards for improving schools.

    This doesn't even take into account administrative positions at HQ. With every new superintendent, the salaries rise, while teachers' salaries are frozen, hours lengthened and positions slashed.

    Do we need any more proof that U.S. schools are following the corporate model - reward those at the top, not the teachers who are actually doing the work?

  • howard on April 30, 2012 5:32 PM:

    i'm going to speak to another aspect of jea's jejune comment.

    presumably, teachers are also supposed to order books and supplies, maintain astudent records, order food and make lunch, be sure that parental volunteers have, in fact, been checked for criminal records, work out school bus schedules, communicate with parents, and all the other things that go along with operating a school system other than actually teaching students in class.

    in fact, principals don't teach, so presumably, jea, we're supposed to cut them first.

    alternatively, you could stop with the absurd notion that "administrators" are simply "filling out useless paperwork."

  • Neildsmith on May 01, 2012 4:51 AM:

    We all need to come to grips with the reality of American politics. Few people trust government to do anything. Liberal pundits and economists who argue for this or that policy to alleviate some real or imagined suffering ignore this fact. You can't fix America. And even if some of these suggestions will help a few people on the margins, there is little political support for throwing more money at what many perceive as a corrupt enterprise. We're stuck. Government doesn't work, business is irredeemably corrupt, and the American people are either indifferent or complicit.

    Wow - that's depressing. But just look around and tell me it ain't true.

    Cutting government support to the elderly, sick, poor and middle class may be the only way to show us all how much we need it. I say bring it on.