When the economy collapses, the federal government runs a deficit. This is basic economic stuff. Americans have less money so tax revenue goes down. The government sends more money out to Americans to keep demand alive, and deficits go up. On the other hand, our 50 states do not have the opportunity to run deficits during recessions, because they are constitutionally required to balance their budgets. So states are slashing spending and raising taxes during a recession. It's important to understand that zero economists think the federal government should do both of those things in a recession. Literally, zero.
No, make that one: Economist David Broder! The Dean has a column today -- "What the states could teach Washington about budgets" -- about our states are desperately slashing jobs and spending and grabbing money from their recession-battered constituents, and how that's a really great idea Obama should think about turning into a federal policy. Take it away, Dr. Broder.
While the federal government was handing out tax rebates and is preparing to extend many of the Bush-era tax cuts, 13 states were raising personal income taxes; 17 were passing sales tax and various business tax increases; and 22 were increasing excise taxes on tobacco, alcohol or gasoline.
And onto the conclusion:
Governors live in the real world, where budgets mean something more than a formula for shifting burdens to the next generation and where there is much less room for partisan games...
Broder's typically a laboriously evenhanded guy. This column could have used another hand. I like long-term deficit reduction plans as much as the next person (unless the next person is Pete Peterson) but holding up the states as fiscal models for the federal government is insane. One reason the US has to run a huge deficit is precisely to keep states from firing all their public employees and jacking up taxes. As former CBO Director Bob Reischauer told me, rescuing the states from their own contraction is "the most important component" of our deficit spending. We're running a deficit partly to compensate for the "real world discipline" of the states.
Broder talks about responsible spending cuts as though the state budgets were mostly going to Mars in 2007. What he calls reducing fund outlays, hundreds of thousands of families call "being pushed onto unemployment benefits," which are paid for, incidentally, out of Washington's deficit. When the states cut spending, automatic stabilizers raise federal spending. Even the states are clamoring for more stimulus money from the federal government to keep their budgets from falling apart. There are good arguments to be made about how to reduce our debt. This is not one.
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