Here Come the State Bailouts, Starting W/Cali (om top of what they already received)

Discussion in 'Economics' started by ByLoSellHi, May 24, 2009.

  1. Woo Hoo!!! More bailouts!!! Yes!!!

    F**k responsibility and living within your means!!! That's just a line of bullsheeyat that sounded good when you were in school or at university!!!

    Do as we say and not as we do!!

    This is how we really roll!!!

    The Sorry State of the States

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    Published: May 23, 2009

    Is California next in line for a bailout? Facing a $21 billion budget gap, California has asked for federal aid, probably in the range of $5 billion to $10 billion. Whatever form it might take, say loans or loan guarantees, taxpayers nationwide would be kicking in to help clean up California’s mess.

    So far, the administration has correctly declined to help, but there is no doubt that a fiscal meltdown in California — one of the world’s largest economies — would be a fiasco. If Washington is forced to intervene, it must do so in a way that does not simply create a long line of states demanding relief as well.

    Nearly all of the states face budget shortfalls. Though California’s is the worst in sheer dollar terms, cumulative state deficits over the next two years are estimated at $350 billion to $370 billion. Federal stimulus spending will offset about 40 percent of that. To close the gap, most states have cut spending and many have raised taxes, or are seriously considering tax increases.

    California enacted big spending cuts and tax increases in February, but they were not enough. Last week, voters rejected budget measures that would have eased the state’s dire condition. If federal aid were to allow California to go on delaying necessary reforms, other states would want the same slack.

    Like other states, California is suffering from a collapse in tax revenues brought on by the recession. Unlike other states, it suffers from severely dysfunctional politics, including gridlock-inducing budget procedures and a deeply anti-tax strain that plays itself out in endless voter referenda, dating back to the Proposition 13 property tax cap from the 1970s. As a result, Gov. Arnold Schwarzenegger declared recently that more tax increases are politically impossible. Yet, his proposed spending cuts are also unappealing, if not impossible, including slashing education and health care funds and releasing prison inmates early.

    What the Obama administration should make clear is that a bias for spending cuts — and against tax increases — is the wrong approach for California and other states. Both spending cuts and tax increases are harmful in a downturn, because they reduce already weak consumer demand. But most states are required by law to balance their budgets, so when deficits emerge, they are forced to do one or the other, or both.

    Contrary to conventional wisdom, raising taxes may be better than spending cuts because tax increases, especially if they are focused on wealthy taxpayers, have less of a negative impact on consumption. Spending cuts hit consumption hard, depriving the economy of money that would otherwise be spent quickly. They also have the disadvantage — so evident in the cuts proposed by Mr. Schwarzenegger — of falling heavily on the needy.

    If California cannot or will not solve its problems and emergency federal aid is deemed necessary, the administration must attach strings — perhaps by limiting the ways the money can be spent. An onerous quid pro quo would send a message to other states that bailouts are not worth the hassle — that there are no pain-free ways out of this downturn.
  2. ...would last exactly until the mid-term election campaign starts. Which was the day after inauguration.