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Austerity now, austerity forever

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State and local governments face about $500 billion in revenue shortfalls from the pandemic, spread over three fiscal years, research published this fall by the Brookings Papers on Economic Activity estimates. […]

Calculations from the nonpartisan Congressional Budget Office support the case for more aid, concluding that money for states and localities provided the most cost-effective economic boost of any of the provisions in the first wave of economic assistance this spring. […]

Influential conservative groups like Americans for Tax Reform and Heritage Action for America have called the issue a “red line for conservatives.”

“When you have less money, it makes you do reforms to reduce spending,” said Grover Norquist, the president of Americans for Tax Reform. “Don’t bail them out,” he said, “or there will be no normal budget discipline.”

The CBO report is here. Of all the items in the spring stimulus package, the aid to state and local governments had the best projected GDP return, including direct payments to individuals. Also, the chief economist at Moody’s Analytics said several months ago that the $500 billion in revenue shortfalls could shrink GDP by 2 percent.

* And…

Six of the seven states that are expected to suffer the biggest revenue declines over the next two years are red — states led by Republican governors and won by President Trump this year, according to a report from Moody’s Analytics.

* Meanwhile…

States are still broadly hurting from the economic crisis. But California now expects a one-time windfall this fiscal year. Wisconsin said it might still be able to sock away some revenue in its rainy day fund. Maryland nudged up its projected revenues, for the second time this fall. And Minnesota now forecasts a surplus.

This good news reflects in part the dire economic expectations of six months ago; even modest numbers look good now compared with the worst fears written into state budgets in the spring. And state officials say they’ll still need federal help, as they expect the pandemic’s effects to drag on for years and to batter local governments. Federal help, after all, is part of what has buoyed them so far.

The states with rosier forecasts also complicate the political fight in Washington over state aid, which is likely to get pushed into the new year after lawmakers dropped the aid from a year-end stimulus deal nearing completion. Republicans have characterized state aid as a bailout for profligate blue states. But many states that are looking better now have among the most progressive tax structures in the country, and that is part of what has rescued them this year.

This recession, distinct from many before it, has piled its worst effects on low-wage workers. That means that state budgets that rely the most on wealthier residents to fund government haven’t been hurt as much by an economic crisis that left the well-off largely unscathed. [Emphasis added]

Many of the same people who are now arguing against federal money for state and local governments also argued against a graduated income tax here. Just sayin…

posted by Rich Miller
Friday, Dec 18, 20 @ 12:35 pm

Comments

Many of the people who argue against State and Local aid want to see Illinois jump off a fiscal cliff, no other way about it.

Which is bizarre to me. How anyone who lives here, pays taxes here, would just want more suffering than is necessary. But that’s politics…

Comment by Nick Friday, Dec 18, 20 @ 12:47 pm
“Six of the seven states that are expected to suffer the biggest revenue declines over the next two years.”

It’s what they vote for, being rugged individualists who don’t need the crutches of “socialism” and government dependence, so they should be okay.

Vote Yes failed badly in not tying the Fair Tax to austerity and drastic cuts to the poorest, schools, most vulnerable, etc. It had six years or more of material to use in ads from which to choose, going back to Rauner.

Comment by Grandson of Man Friday, Dec 18, 20 @ 12:50 pm
So much… ugh.

“The same people” who also want Illinois to declare bankruptcy also are against aiding Illinois AND local munis… so when the police are defunded, will they cheer that too?

The common thread is a bunch of angry folks who think they know why they’re mad, but in the end it’s about denying others what they can’t have, or hurting people “not like them”… even if it hurts people who are, ironically… themselves.

Comment by Oswego Willy Friday, Dec 18, 20 @ 12:51 pm
How appropriate the same day Grover Norquist is blathering on this was on BBC America

https://www.youtube.com/watch?t=42

Comment by Anyone Remember Friday, Dec 18, 20 @ 12:57 pm
Many of the people who argue against State and Local aid want to see Illinois jump off a fiscal cliff, no other way about it.
Which is bizarre to me. How anyone who lives here, pays taxes here, would just want more suffering than is necessary.

Now imagine that you work in finance or own an investment firm that makes money by loaning money to the state — and that you make even more money if the state’s credit rating is awful.

There is no big mystery here.

– MrJM

Comment by @misterjayem Friday, Dec 18, 20 @ 12:59 pm
“Austerity now, austerity forever…except with the GOP is in power and explodes the deficit to hand out tax breaks to corporations and the rich”

I think that’s a little more accurate.

Comment by Joe Bidenopolous Friday, Dec 18, 20 @ 12:59 pm
The fair tax failed. Implement a work from home tax. Stop grasping at a failed idea that the people voted against. Yes I voted for it, but it failed. Move on.

Comment by Jeff S. Friday, Dec 18, 20 @ 1:00 pm
I’d like to see the influence of Grover and his ‘taxation is theft’ crowd shrink down to the size where we could drown it in a bathtub.

Comment by Jocko Friday, Dec 18, 20 @ 1:01 pm
If JB really has learned anything from his fair tax failure, he will release a long, detailed list of possible cuts targeted at downstate areas before officially proposing anything. “Conservatives want a budget containing cuts only? Okay……”

Comment by Lester Holt’s Mustache Friday, Dec 18, 20 @ 1:09 pm
From the NY Times piece it shows 40 states that are down 5% to up 5%+ on their revenue YoY. A 5% decline should easily be budgeted for after 10+ years of growth. McConnell was right in holding back on State & Local. Let it play out and revisit it in 6 months if State & Local is getting worse. An adequate reserve should largely take care of a $500Bn deficit over three years if you look at the amount of revenue brought in aggregate across the 50 states. In May The Dems knee jerked and wanted $1Tn for what? The data never showed that was needed.

A 2% decline in GDP…that’s it? 2021 GDP estimates are 5% - 6%. Pass UI, eviction moratorium, PPP, etc. Illinois needs to deal with its problems for once and not flail its arms all over the place like Harmon did at the beginning of the year or JB and Lori have for how many months.

Comment by 1st Ward Friday, Dec 18, 20 @ 1:13 pm
“Implement a work from home tax.”

And you think that would succeed???

Move on with that 5% tax idea, too. For someone earning $55K, that’s $10 per day according to the Deutsch Bank geniuses that worked that up. Do you consider that a “fair tax”???

https://abc7ny.com/coronavirus-work-from-home-tax-covid19-wfh-10-dollar-covid/7899134/

Comment by Anon221 Friday, Dec 18, 20 @ 1:16 pm
““Don’t bail them out,” he said, “or there will be no normal budget discipline.””

Because these are such “normal” economic times. /s

Norquist is a classic troll, whose ideas have been proven destructive multiple times, but who remains supported by some wealthy donors.

Comment by walker Friday, Dec 18, 20 @ 1:16 pm
Austerity, my ______ I sent the links below to Rich on Twitter this morning.

https://www.chicagotribune.com/real-estate/elite-street/ct-re-elite-street-mystery-winnetka-deal-24-million-20201217-xklo34aq6rd45hr4ke32wbl3mq-story.html#nt=pf-double%20chain~top-news-chain-2~flex%20feature~curated~real-estate-here-fri-930a~XKLO34AQ6RD45HR4KE32WBL3MQ~1~1~2~8~art%20yes

https://twitter.com/adam_tooze/status/1339943501035950083?s=20

On Adam Tooze twitter thread he has some excellent info and graphs on inequality in the US

Illinois (at least the Chicago Metro area) is one of the richest states in the richest country in the world. And we all act like the boy in the movie Oliver begging the king for more porridge. We live in a new Gilded Age/Feudal society. end of story.

Comment by Big Jer Friday, Dec 18, 20 @ 1:18 pm
Thanks Joe Bidenopolous….I couldn’t agree more…

Comment by Loop Lady Friday, Dec 18, 20 @ 1:18 pm
@ Jeff S. “Implement a work from home tax”

You do know that people can work remotely from anywhere in the world, including outside of IL?

How would that tax be applied?

Comment by Jeff S. Friday, Dec 18, 20 @ 1:19 pm
“and that you make even more money if the state’s credit rating is awful.”

You make less since rates are lower compared to a few years ago. Illinois yields are 2.8% down from 6% back in March. Lightfoot refinanced as much as she could and took the full 30 years of interest savings upfront to balance the budget. So to say its more expensive today isn’t correct.

https://www.bloomberg.com/news/articles/2020-12-11/illinois-s-bond-market-penalty-hits-lowest-since-pandemic-crash

Comment by 1st Ward Friday, Dec 18, 20 @ 1:22 pm
When you live in fantasyland, you can manipulate the narrative to suit whatever ending you want. Unfortunately, for those of us who live in the real world things banned word.

Comment by Norseman Friday, Dec 18, 20 @ 1:22 pm
“Don’t bail them out,” he said, “or there will be no normal budget discipline.”

So he wants to apply this to businesses as well, right?

Comment by Jibba Friday, Dec 18, 20 @ 1:29 pm
Maybe we should start saying that Grover Norquist and Ken Griffin are in favor of de-funding the police and see what happens. Effectively that is what they are saying but that part never comes up. Maybe we can arrange a meeting between them and the Chicago FOP and see who comes out on top.

Comment by Publius Friday, Dec 18, 20 @ 1:30 pm
In Chicago cuts were made for CPD vacancies. THe problem with Chicago’s budget is due to another gift from Mayor Daley II CFD has minimum manning, which makes CFD untouchable.

Comment by James the Intolerant Friday, Dec 18, 20 @ 1:39 pm
“Illinois yields are 2.8% down from 6% back in March. *** So to say its more expensive today isn’t correct. ”

I never said it’s more expensive than it was at some point in the past.

I said it’s more expensive than it would be if the Fair Tax had passed.

– MrJM

Comment by @misterjayem Friday, Dec 18, 20 @ 1:43 pm
Ignore the anarchists like Norquist, start treating tax rebates / credits / incentives as expenditures, and put ‘em on the chopping block.

Comment by Ares Friday, Dec 18, 20 @ 1:52 pm
@ Pubilus
Ken Griffin and CPD defunding:

https://9news.com/mobile/article/news/nation-now/billionaire-ken-griffin-donates-10-million-to-help-chicago-police-curb-murders-shootings/465-297cb888-70e7-4337-9b0c-01b6e62ba6c0

Comment by Jockey Friday, Dec 18, 20 @ 2:14 pm
This is the end game of Grover Norquist’s “starve the beast” plan first rolled out under Reagan in the 80’s. The folks behind this understand that people don’t like program cuts, so they decided to cut taxes in order to create a situation where programs cut would be unavoidable.

Comment by Pot calling kettle Friday, Dec 18, 20 @ 2:17 pm
—-Implement a work from home tax—

Now you want to tax people for staying home, unreal.

Anyone who works for the state can find you an unbelievable amount of waste. Start with the Business Adminstrators and have them review all the ridiculous contracts and rules. Offer them a bonus for finding large amounts of savings. JB will have to protect them from CMS - anyone who works for the state can also tell you the repercussions for questioning procurement.
Will there be enough waste found to plug the budget hole, probably not. But it will restore some faith in government spending which will increase the odds of voters approving a ‘fair tax”

Comment by Southern Dude Friday, Dec 18, 20 @ 2:20 pm
I have really never understood why expecting governmental bodies to be fiscally responsible is such a bad thing. I have no problem with Congress providing aid to areas to reimburse them for losses that are directly related to the pandemic. Maybe create a process asking states to calculate their losses by comparing them to funds received for carious things in 2019 and reimburse them up to that level. I have a big problem with states that were poorly managed financially (Illinois, please raise both hands) prior to this pandemic taking advantage of this opportunity to dump their mess on taxpayers for the entire country. They should not fund our pension funding shortfall, or our 8 billion in outstanding bills. Helping fund losses in revenues due to the pandemic once they are quantified is something that merits consideration by Uncle Fed.

Comment by Really Friday, Dec 18, 20 @ 2:21 pm
==I have a big problem with states that were poorly managed financially==

What about the 40 states that take more in federal assistance than they pay in taxes? Or subsidizing rebuilding homes in areas that are flood or hurricane prone?

Comment by Jocko Friday, Dec 18, 20 @ 2:29 pm
Jocko,

Different issues in my book. Natural disasters are occasional and not controllable. Takers vs providers is something they should probably discuss. But poor financial management is manmade and controllable. People shouldn’t be rewarded because they want people to like and re-elect them so they throw fiscal discipline out the window and continually write and pass financially negative legislation which has gone on in Illinois for decades. Poor behavior should be punished, not rewarded.

Comment by Really Friday, Dec 18, 20 @ 2:33 pm
Really, nobody is legitimately saying that the government should “bail out” Illinois or other states, or fund pension funds. Honestly the money coming from the feds would probably not even fully cover the lost revenue. However people like Norquist (who should have been ignored by everybody for years) are arguing to literally starve governments. The major bad decisions made by Illinois were a too low tax structure and using pensions as a credit card for decades.

Comment by MyTwoCents Friday, Dec 18, 20 @ 2:34 pm
=== Natural disasters are occasional and not controllable.===

This is worse than that, a once in a century global pandemic.

You don’t like pensions, state workers, and you want pain, even if you feel that pain too. You told me so, I can show you where.

I already have an in-law uncle married to my favorite aunt, you both would find lots of room to talk to each other as everyone gives a wide berth.

Comment by Oswego Willy Friday, Dec 18, 20 @ 2:37 pm
California is a high tax state but make no mistake it is running to budgetary problems.

=The report released Wednesday estimates California will see a temporary surplus next year beyond what lawmakers and Gov. Gavin Newsom expected when they created the current $202 billion state budget that cut money from education and state worker salaries.

That extra cash could allow them to avoid major cuts in next year’s budget, but the windfall will evaporate quickly, the report warns. California still faces long-term deficits driven by the coronavirus pandemic that will rise to $17 billion by 2024, according to the Legislative Analyst’s Office, the nonpartisan office that advises the Legislature on the budget.=

https://www.sacbee.com/news/politics-government/capitol-alert/article247265579.html

Just having high tax rates is not going to be a salvation. Another view:

=There are many reasons to oppose handing over tax subsidies to the ultra-wealthy, but the effect of new remote technology on state and local taxes requires some serious scrutiny by all levels of government. As more Americans, especially the 1%, have flexibility about where they work, city and state governments will need to develop new revenue models that account for the locations of both the people and their businesses. When an advantaged class can live thousands of miles away from where they work and own assets, it deprives cities of a vital source of revenue.

https://www.bloomberg.com/news/articles/2020-12-16/what-happens-when-the-1-move-to-miami-and-austin?utm_source=pocket-newtab

In my opinion that issues is not just relevant to cities but also to states as those states with lower taxes will be he eventual ‘winners.’

Comment by Unconventionalwisdom Friday, Dec 18, 20 @ 2:42 pm
=== California===

We’re talking about Illinois.

California, Connecticut… Colorado…

Illinois is hurting. That’s not changing due to a once in a century pandemic and this idea that hurting states is smart, and crushing munis is wise… there’s no fiscal sense but to the feature, not the bug… to purposely continue pain.

Comment by Oswego Willy Friday, Dec 18, 20 @ 2:44 pm
Part of Illinois’ problem is that we have never been able to afford it and that goes back to 1818. Read about the Internal Improvement Act of 1837.
http://journal.c2er.org/history/theme-2-f-the-railroad-as-edo-lincoln-and-douglas-illinois-post-1839-default/

Comment by Publius Friday, Dec 18, 20 @ 2:45 pm
Really
Some natural events become disasters when governments allow/promote building in flood plains and then do it all over after the feds ahve paid to rebuild in the same floodplain.

Comment by very old soil Friday, Dec 18, 20 @ 2:49 pm
=. But many states that are looking better now have among the most progressive tax structures in the country, and that is part of what has rescued them this year.=

Thus, prompting my mentioning of California. Same situation in New York as well.

Comment by Anonymous Friday, Dec 18, 20 @ 2:54 pm
Sorry, that was me Unconventional wisdom not Anonymous which I have used on another site and it popped up

Comment by Unconventionalwisdom Friday, Dec 18, 20 @ 2:56 pm
=== prompting my mentioning of California. Same situation in New York as well.===

Since we don’t have a progressive income tax the reference was in comparison, not to exacting.

Again, doesn’t negate our need, or munis need…

Comment by Oswego Willy Friday, Dec 18, 20 @ 2:56 pm
=== Big Jer - Friday, Dec 18, 20 @ 1:18 pm:===

Give me a couple of days and I’ll be happy to show you around some of the poorest parts of the State and afterwards you might start to understand the big picture a bit better.

Comment by Candy Dogood Friday, Dec 18, 20 @ 2:57 pm
For those interested, Americans For Tax Reform applied for and received a PPP Grant. Aah, irony!

Comment by Bond Guy Friday, Dec 18, 20 @ 3:06 pm
Fiscal responsibility is a joke in government, just like the 40 Billion dollars of welfare farmers received before the election. We needed the progressive tax period.

Comment by BluegrassBoy Friday, Dec 18, 20 @ 3:06 pm
In the face of mandatory austerity the state’s failure to address the need to reorganize and restructure government to improve service delivery and reduce duplication is simply shocking. Why do we have 8,000 units of government (many single purpose or serving tiny populations) and all with administrative overhead, thirteen separately administered state universities, two (or even one) state fairs that only a tiny fraction of the population attends, etc, etc, ad nauseam. Past time to rethink what is being done, why it is being done, how it is being done, and by whom. Cutting spending and increasing taxes are not the only two options which can contribute to solving the state’s fiscal crisis and yet, those are the only ones being discussed.

Comment by striketoo Friday, Dec 18, 20 @ 3:15 pm
Those who attack Illinois for finances don’t utter a peep of criticism against the Republican-led federal government’s explosion of deficits and debt. Same with Rauner’s willful financial damage. Since they are apparently not bothered by GOP fiscal performance, there must be other reasons why they attack Illinois.

Comment by Grandson of Man Friday, Dec 18, 20 @ 3:25 pm
Some events become disasters when you pass a budget assuming legislation will pass and then it doesn’t. Or when you budget based on an assumption of funds from Uncle Fed, and then they don’t appear. Budgeting should be worse case or zero based and then if you get good news it can create a rainy day fund or pay down past due bills. Face it, the legislative branch in this state has created a mess that has been exacerbated by the pandemic and now they have to beg ole’ Uncle Joe to write them a big check. Reimburse fir pandemic related losses. OK. But not a penny for past bad behavior.

Comment by Really Friday, Dec 18, 20 @ 3:29 pm
=== Reimburse fir pandemic related losses. OK. But not a penny for past bad behavior.===

(Rolls eyes)

How nice of you… global pandemic, your graciousness… you think you’re giving in.

Comment by Oswego Willy Friday, Dec 18, 20 @ 3:35 pm
===you might start to understand the big picture a bit better.===

Candy,
Clearly you seem to have misinterpreted my comment or I was not clear. My comment and the links attached were to show how large parts of Illinois are very wealthy and the US as a whole is a rich country. My austerity my___, was intended to communicate that austerity/deep budget cuts is baloney when you live in a state and nation with an abundance of wealth and income.

I have lived most of my 61 years in Illinois, went to college at Illinois State in Bloomington/Normal in the 1980’s, and over the course of my life have driven and seen almost every corner of Illinois so trust me I have seen the big picture. And I have seen how over the course of my life the amount of poor people has increased in both Illinois and the US. But the amount of rich, obscenely wealthy, upper middle class, etc. people has increased as well.

And for the people spending $24 million on 3 acres of land, enjoy it for now because everyone reaches their breaking point and then the pitchforks will come out and we will storm the castles.

Comment by Big Jer Friday, Dec 18, 20 @ 3:46 pm
“A 5% decline should easily be budgeted for after 10+ years of growth.”

You have heard of the Edgar Pension Ramp, correct?

Comment by Anyone Remember Friday, Dec 18, 20 @ 4:16 pm