Top of the News: I was out of town when Gov. Gregoire rolled out and disowned her budget, balancing it as required by law but saying new revenue must be found to avoid further brutal cuts. Many of these would affect the most vulnerable residents of the state.
State fiscal crises are in headlines around the country. But the media do a poor job of explaining their holistic connection to the overall economy. Whatever happens with housing or inventories or the trade deficit, these state collapses will be among the biggest factors holding back recovery.
Washington faces a $1 billion gap. In Arizona the shortfall is twice that much. According to the Nelson Rockefeller Institute of Government, third quarter tax collections in the states fell 10.7 percent vs. the same period last year.
One of the most critical questions facing policymakers is how much of these shortfalls is cyclical and will bounce back, and which others are structural (secular) changes in the economy. (Tim Duy has an interesting analysis of this here). There’s little evidence that job growth will resume anytime soon. It’s way too early to know if retail sales will improve this holiday season.
In most places, lawmakers will argue over the little things and head for the tall grass when it comes to taxes. Or push for sales taxes, the most regressive type of taxation. We will hear much yelling about cutting “fat” — we’re way past that.
There will be little discussion of the years of tax cutting and tax limitation measures that helped exacerbate the crisis — leaving states with inadequate revenue for their responsibilities (e.g., the ferry system here). Nor will there be much discussion of the cuts’ affects on competitiveness, such as failure to invest in infrastructure or universities that will be essential to new growth. Nor about how the reset from years of bubbles, etc., will fundamentally change the game.
If disowning all this were only so easy.
The Back Story: We owe, we owe. Here’s a fascinating chart showing the countries that own America’s Treasury securities. China and Japan lead the list.
Today’s Econ Haiku:
Can it finally be?
Dreamliner will be a bird
Not a hangar on