Friday, February 6, 2009

States Beginning to See Reality… But will they Face it?

The numbers do not work at the Federal level and despite that, Politicians are looking to lower Federal income by reducing taxes, while at the same time increasing spending. This is math a fourth grader can understand does not work. Now the states have the same math difficulties, but instead of facing their math reality, they are going hat in hand to the Federal Government for bailout money.

This is the same convoluted thinking that got them into this mess to begin with. The states are comprised, after all, of the same tax payers who provide the tax income on the Federal level. It doesn’t matter what level of government the money comes from, it ALL comes from the same taxpayers.
States to Congress: Send money fast

Governors and mayors nationwide are hungry for billions from the economic rescue plan to create jobs and fill budget gaps.

By Tami Luhby, senior writer

NEW YORK ( -- Massachusetts state workers and retirees face higher deductibles and co-pays on their health insurance.

Many welfare recipients in Tennessee may lose their state-funded child care.

And kids in Riverside, Calif., will likely have to continue walking to school on the roadside instead of on sidewalks.

These are but a few of the programs and projects that the weakening recession has put on the chopping block as state and municipal officials wrestle with widening budget gaps.
At least 46 states are facing shortfalls in their budgets as tax revenues dry up. They are making harsh cuts to social services, putting infrastructure projects on hold and laying off government employees.

That's why governors and mayors are pressing federal lawmakers to pass the stimulus package, which could send billions of dollars into their coffers. The funds could help reverse planned budget cuts and revive their economies by putting people back to work on public construction projects.

States could receive as much as two-thirds of the stimulus package funds, which top $900 billion in the current Senate version. The majority of the money is being targeted for programs such as education, Medicaid, infrastructure and unemployment. But governors will also get billions to help close their budget gaps.

"It allows them the flexibility to fund their priorities," said David Quam, director of federal relations for the National Governors Association. "The money is not going to fill all the gaps, but the states are willing to make the changes they need to make for the long run."

The Senate was racing to vote on the package by Friday, and Congress hopes to send a reconciled bill to the president next week.

Though most of the rescue money is going to the states, some will trickle down to the cities. Many mayors, who converged on Washington this week to urge lawmakers to pass the stimulus bill, already know how they can use the funds.

The mayors have put together a "Ready to Go" report that details 18,750 local infrastructure projects in 779 cities that can be started as soon as funding is received. The projects, which represent an investment of $150 billion, would create 1.6 million jobs in 2009 and 2010.

The states can use their infrastructure allotments to fund these projects. Plus, the cities will receive more money from community development block grants contained in the package.

In Riverside, Calif., Mayor Ron Loveridge said much of the stimulus money he receives will go to the city's water mains, roads, community centers and sidewalks. Not only will it provide long-term improvements, it will help reduce the city's unemployment rate, now at 10.5%, far above the nation's 7.2% level.

And once people start working again, they can start shopping again. That will help the city close its $14 million budget gap by increasing sales tax revenues.
"It stimulates the economy by providing jobs," Loveridge said.
Wow, that’s some kind of math genius there. Loveridge sounds “ready to go.” How come so many of these whizzes wind up in government? Unbelievable the misunderstanding; no wonder we are where we are… if only we can get people who are in debt up to their eyesockets and taxed to death to go shopping and spend more money they don’t have. That’ll solve our problems. And did I see the words “trickle down” in there? Uh, huh, that’s sound math too. Of course adding further tax burden onto those constituents will really help.

The truth is that government has grown to gargantuan and unsupportable size. The only way to get the math to work is to do the exact opposite of what is being proposed. In other words, government must shrink and taxes must be raised. If you fear higher taxes killing the economy, you would be right, but the root of the tax problem can be found in the debt. It’s an ugly situation no matter how you look at it, and getting out of it will not be painless.

I’ve been talking about how we’ve reached debt saturation, that’s what the math says (Death by Numbers), and it’s why we’re experiencing deflation (Inflation or Deflation – It’s a Mystery…).

Now I’m going to tell you that the same people who are debt saturated are also tax saturated. Again, incomes do not support the current combination of debt and high taxes. Therefore, defaulting to clear the debt must occur by someone. The banks have weaseled their way out, the automakers have weaseled their way out, and now the States want to weasel their way out.

But guess what? The debt and budget short falls are still there. If there’s a light bulb that’s lit in the political or Keynesian economic world, I don’t see it. Put a fourth grader on it, at least they will be able to understand how the math doesn’t work!