Tuesday, June 30, 2009
Don't go overboard with cuts
Many states are wisely raising taxes as part of their painful spending plans.
By Jon Shure
Jon Shure is deputy director of the State Fiscal Project of the Center on Budget and Policy Priorities in Washington. For more information, see www.cbpp.org.
Like most states, Pennsylvania and New Jersey will soon ring in a new year not with champagne and noisemakers, but with recession-battered financial plans that threaten the well-being of families and could further impede economic recovery.
The states' fiscal years begin tomorrow, and the budgets taking effect that day - or, in Pennsylvania's case, whenever lawmakers and the governor manage to agree on one - will be grimly austere. That's the result of perhaps the most daunting set of financial challenges since the Great Depression, which are likely to last through 2011.
The problem is the ripple effect of a national recession: People buy less and earn less, reducing what states get from income, sales, and corporate taxes, their main funding sources. Sadly, the current revenue declines are the largest in memory, while the need for the services the money pays for is rising dramatically.
Unlike the federal government, states can't print money or run deficits. So to meet today's needs and emerge strong when prosperity returns, they should use a balanced approach. Rather than tipping the balance too much toward cutting spending, they should also responsibly raise revenues and make the most of federal stimulus funds. By supporting income-tax increases, Govs. Rendell and Corzine are following the advisable game plan.
Those who argue for a cuts-only approach ignore the reality that spending reductions in Pennsylvania and New Jersey are already expected to go way beyond the budgetary "fat," carving into muscle and bone. Examples include halving support for at-risk kindergartners in Pennsylvania and slashing $100 million of nursing-home funding in New Jersey.
Cutting can be counterproductive. State budgets are dominated by spending on health and education - areas essential not only to residents' day-to-day well-being, but also to producing a skilled, healthy workforce and a strong economy down the road.
Besides the obvious impact on people's lives of cutting too deeply, there is the harm it can do to a state's economy. Consider that state spending goes mostly for salaries, contracts, purchasing, and financial assistance to people in need. That's economic stimulus - money spent quickly and close to home. Turning off that tap slows demand, making recessions worse.
To avoid a dangerous overreliance on spending cuts, more than half the states have raised taxes this year, or are considering doing so. History tells us that's prudent. Raising taxes does less harm to the economy than cutting spending does.
While big cuts take money out of circulation, at least some portion of tax increases - especially on the wealthiest households - comes from money that's parked in savings and isn't boosting economic activity. Past experience shows that the economic performance of states that raise taxes will be just as strong as those that don't - and, sometimes, even stronger.
Leaning on stimulus
The third leg of the stool needed to support upcoming state budgets is money from the federal stimulus package enacted in February. Of the $787 billion in the stimulus bill, some $140 billion will go to states over the next two years to help them avoid or at least lessen reductions of important services. It was never expected to be enough to prevent all budget cuts or tax increases, but it will, on average, close about 40 percent of the states' shortfalls.
One of the main things the federal money should help states buy is time. Many states went into this recession with their finances already weakened by ill-advised tax cuts in the 1990s and a failure to keep pace with rising needs in such areas as transportation infrastructure, environmental protection, and health care. It would be a good idea to use the bit of breathing space offered by the federal stimulus to better align revenue systems with public priorities.
The depressing reality is that, though the national economy seems to show tentative signs of rebounding, state budgets will likely be under significant pressure for at least the next two years. State tax revenues tend to recover more slowly than the economy as a whole, because unemployment eases only gradually. And the hole from which states must dig out this time is as deep as they come.
A new year with the word happy in front of it is still far off for the states. But making the right decisions now will help.
Thursday, June 25, 2009
The latest round of cuts totals $500 million, with the Departments of Education and Public Welfare slated for the largest reductions. We won’t know which programs will be affected until the details are released to the public any day now. Here’s what we do know about the proposed tax increase:
- Pennsylvanians now pay 3.07 percent in Personal Income Tax (PIT). The Governor’s proposal would raise it to 3.57 percent for the next three years. At 3.57 percent, Pennsylvania would have the third lowest personal income tax rate in the country.
- The average Pennsylvania household earns $48,562 per year. The table below shows the impact on families at various income levels.
- More than one third of Pennsylvania households would be unaffected by an increase in the PIT. These are low-income households (earning below $34,400) that already receive a refund on the PIT through Pennsylvania’s Tax Forgiveness program and senior citizens whose primary income is Social Security.
- Pennsylvania has a successful track record of enacting temporary increases in the PIT. In 1983 under Governor Thornburgh (R) and 1991 under Governor Casey (D) the legislature increased the tax but included a ‘sunset’ date in the enabling legislation. The sunsets occurred on schedule.
- Pennsylvania’s proposed tax increase is consistent with actions taken by other states to reduce their deficits. At least 16 states have enacted tax increases this year. At least six increased the PIT and the same number increased sales tax. Seventeen states increased tobacco taxes, at least seven raised taxes on alcohol, and at least two have raised corporate taxes.
What You Can Do
Opponents of tax increases are well-organized and making their views known in the press, on the airwaves, via robocalls and on blogs.
State legislators from both sides of the aisle recognize that we cannot cut our way out of this financial crisis. The magnitude of the projected deficit makes a tax increase inevitable if the General Assembly is intent on fulfilling its legal obligation to pass a balanced budget.
Legislators are asking for ‘cover,’ urging constituents who care about preserving services for children to contact them and the news media.
Write to them. Tell them how cuts approved by the Senate – including 50 percent reductions in state-funded Head Start and Pre-K, the denial of child care subsidy to 7,700 families, reducing the number of children enrolled in CHIP by 12,000, and a slowdown in Basic Education funding -- would affect you, your family and community.
Let them know you would be willing to support a nominal tax increase to maintain these vital programs for Pennsylvania’s kids!
Legislators: http://www.pccy.org/ or http://www.legis.state.pa.us/
Letters to the editor:
And don’t forget community newspapers!
Speaking of letters to the editor... here are a few recent ones that give us hope:
Posted on Tue, Jun. 23, 2009 (Philadelphia Inquirer)
Letters: GOP plan would hurt Philadelphia schools
As a proud parent of a student in the Philadelphia school system, I have been pleased with the upward direction of the schools. But the recent gains the district has achieved depend on continued resources.
I am concerned that the Republicans' bare-bones education plan would reverse recent gains. The plan would eliminate summer school programs and limit alternative-education services for at-risk students. It would reduce school police coverage.
And it would increase class size. Superintendent Arlene Ackerman's plan to reduce kindergarten classes to a maximum of 23 would be killed, as the limit would be increased to 33. Instead of reducing class size in grades one to three to 24 or 26 students, it would increase it to 33. And class size in grades four through eight would increase to 35.
In the famous Peanuts comic strip, Charlie Brown tries to kick the football held by Lucy, who pulls it away at the last moment. Just as the Philadelphia schools' Charlie Brown is ready to kick the ball through the uprights of a strong education system and commonwealth, please do not pull away the ball of education funding.
Michael A. Carrier, Philadelphia
Posted on June 20, 2009 (Philadelphia Inquirer)
Letters: Can't cut services that help the needy
Most thinking people would agree that we need to get the waste out of government, and stop corruption, friendship deals, use of public dollars for political purposes, and hiring of unqualified pols to assess property. No argument there.
But what services exactly do you think the state should cut in this year's budget? Services to autistic children? The Senate's proposal does that already. Services to persons who need mental-health and retardation programs? The Senate proposal does that, too. Slash Head Start? Children's health care? Cut library services in half? Early childhood programs? All cut in the Senate bill.
The Senate's proposal will make our huge waiting lists grow by leaps and bounds. We shouldn't forget that taxes are the price we pay to live in a civilized society.
Gerry Kaufman, Philadelphia
Posted on June 22, 2009 (Philadelphia Inquirer) http://www.philly.com/inquirer/opinion/48757627.html
Letters: Better-funded schools are a crime deterrent
When talk from Harrisburg heats up about rolling back plans to address underfunded public schools, police chiefs like me take notice. We know what happens to a dream deferred, what happens to the undereducated, unemployed, and poor, who have limited options in life. They help fill our jails and state prisons.
Yes, revenues are tight this year - for corporations, municipalities, and individual homeowners. But what's the cost to communities like Upper Darby if we retreat on public education now?
High school dropouts are eight times more likely to be in jail or prison than people who complete high school. A study by economics professor Lance Lochner concluded that "a one-year increase in the average level of schooling in a community is associated with an almost 30 percent decrease in the murder and assault rates."
Imagine the impact of that on Upper Darby, home to one of the most underfunded school districts in the state. Pennsylvania ranked 44th in the nation for its contribution to public education; funding reform should not wait another day. The prison population certainly isn't.
Michael Chitwood, Superintendent of Police, Upper Darby
...Meanwhile, Governor Rendell has made a slew of appearances in suburban Philadelphia to promote the importance of funding children and families and to emphasize the only way this can happen is if the legislature supports a temporary tax increase.
Three weeks ago he appeared in Delaware County to underscore the importance of staying the course with education funding, which the Senate budget would reduce by hundreds of millions of dollars. Over the weekend he spoke in Montgomery County about cuts to autism services if the Senate budget stands. Yesterday he returned to Delaware County to talk about the impact of cuts to CHIP – the children’s health insurance program. You can see a report on KYW’s web site, http://www.kyw1060.com/Rendell---Child-Health-Care-May-Be-Cut-to-Balance-/4669206 or on http://www.philly.com/.
Simultaneously hundreds of people gathered in Philadelphia’s LOVE Park to urge legislators to preserve more than $12 million in the state budget for youth violence prevention programs. Greater Philadelphia Urban Affairs Coalition’s Sharmain Matlock-Turner explained that funding for a variety of programs including mentoring, chess, and summer camp with life-skills coaching are all at stake. Read more about it here: http://www.kyw1060.com/Phila--Protesters-Demand-Money-for-Antiviolence-Pr/4667799 .
What do YOU think?
Friday, June 19, 2009
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