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Monday, August 20, 2007
When Deficits Go Right
Matthew Yglesias:
Preschool money for poor kids is the sort of thing that sounds good when a state is flush. When a recession comes, Medicaid costs go up, and tax revenues go down it's another matter. The state needs to balance its budget, and it's not going to want to do it by slashing services the middle class enjoys. So it comes down to tax increases and cutting services for the poor (and, of course, infrastructure maintenance as we've seen recently) and the poor tend to lose.
Exactly. Federal funding of programs that meet human needs are superior state funding precisely because the federal government can and does run a budget deficit. Except for Vermont, all states have some sort of balanced-budget requirement - be it explicit constitutional amendment, statute, or judicial ruling interpreting the constitution in such a way. The effect of this is that the vast majority of states' program funding is pro-cyclical, so in economic downturns when tax revenues decline, spending must also decline, exacerbating the economic pain felt by citizens. The federal government, on the other hand, by being able to run a deficit can smooth out the effects of an economic downturn (counter cyclical). When the economy tanks and families find themselves with fewer sources of income is exactly when human needs programs are needed the most.
Posted by Craig Jennings
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