Bush budget 'trickles down' and leaves out
social service programs
In The Economic Policy Institute's report Budgeting Beyond the Beltway, author Max Sawicky outlines the ways in which the budget proposed by the Bush administration for fiscal year 2003 will leave state and local governments in a lurch. The federal government plans to shift more of the financial burden of social service provisions to the states, leaving state and local governments with an aggregate budget deficit of almost $100 billion. These governments will be legally required to close these budget gaps by July 2003.
Sawicky says that as a result, Americans may see an increase in state and municipal taxes, as well as disruption of services like road repair and new construction.
The report shows state governments currently run an aggregate surplus of $1.9 billion, and it has been as high as $58 billion in 1998. State and local governments relied on federal grants to provide 20 percent of their total expenditures last year. And while reduction in federal funds will vary by state, in general they will have to find other sources of finance to continue providing adequate social services. Either that, or they will have to cut back on the amount of service providedless people served, or less service per person. Faced with a deficit, local governments may be forced to cut back on education funds, policing, and other basic community services.
Sawicky says certain states will see a large reduction in funding for the children's health insurance program known as SCHIP. A children's vaccine program will take an 18 percent cut, down to $28 million from $34 million. Other programs with proposed cuts include: Community Services Block Grant, Economic Development Assistance, Low Income Home Energy Assistance, and Dislocated Workers Assistance. Total federal spending on the 38 largest federal grants-in-aid programs will decrease 3 percent in real terms.
Furthermore, $5.6 billion of the budget for grants-in-aid is related to post-September 11 concerns. While some of it allows for increases in welfare spending, much is related to security measures to combat terrorism. Sawicky notes, "Security expenditures are not a substitute for basic public services."
He attributes the impending state and local deficits to the far-reaching tax cuts enacted by the federal government. State taxes often rely on the federal definition of taxable income. When federally taxable income goes down, so does state income. The Center on Budget and Policy Priorities estimates the repeal of the estate tax alone will reduce state government revenues by $9 billion. States may create their own form of an estate tax as a remedy.
Sawicky thinks Americans need an economic stimulus package, although not the ones discussed in Congress that included more tax cuts. He says a simple, temporary supplement to grants-in-aid is both in order and affordable. It would only add about $20 billion to the budget deficit. He says such deficit spending may not be as harmful to the U.S. economy in the long term as many people fear.
"There is plenty of money to go around," Sawicky says, "We could go as high in deficit as $170 billion and still be under 2 percent of the GDP. Two percent is a small and sustainable debt." Increasing the deficit would be an effective way to provide general stimulus as well, he says. By paying more into temporary assistance programs, unemployment could go down.
One problem Sawicky sees is that people in Washington "are too quick to say the recession is over. There are signs that we are in recovery, but you don't know until more time has passed. There are also signs that we still have big problems." He added that the conventional standard for marking recovery is an unemployment rate of 5.5 percent. "But we saw that rate go down to 4 percent at the end of the '90's," he says, "Five and a half percent underestimates what the economy can truly achieve."
He concludes, "There is still a case for some kind of stimulus with aid to state and local governments."
For social justice activists, another concern in the proposed budget is the increase in military spending. Sawicky says the budget "includes projects and weapons systems that the Pentagon itself has said we do not need."
The Center for Defense Information lists an increase of $45 billion, or 13 percent, in military spending for fiscal year 2003. It notes that is 15 percent above Cold War averages. Over the next five years, the total spending for military would total $2.1 trillion.
Of the $767 billion dollar budget for discretionary spending (as opposed to mandatory spending like interest on the national debt), $396 billion is allocated for national defense. That is 51.6 percent of the discretionary budget. In contrast, education is set to receive $52 billion. See the CDI Web site for a graphic comparison of 15 other spending categories.Tara Dix