Henry Clay is Not the Man for Our Times

The United States Senate has proven again the maxim that a camel is a horse designed by committee.

Thank you centrists Collins, Nelson, et. al., for this: $40 billion for state fiscal stabilization eliminated.If Governor Paterson's record of rolling budget slashing is any indication, this compromise puts us all on a toboggan ride to fifty third-world states.

Paul Krugman, whose Novel Prize in economics has not yet amplified his voice to audible levels on the Senate side of Capitol Hill, is getting snarky in his impatience:

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Fair enough. And who to blame?

All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama’s belief that he can transcend the partisan divide — a belief that warped his economic strategy.

Also probably fair enough. After all, most of those on the other side of the partisan divide are signatories to Grover Norquist's "National Taxpayer Protection Pledge," as are a number of so-called "centrists." And that pledge would be...?

ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

That would be Hooverism on steroids. Or as Norquist himself famously put it, shrinking government to the size where you can drown it in a bathtub. 172 Representatives and 34 Senators in the 111th Congress live in Norquist's pocket. Including "centrists." Even after Katrina.

How does one compromise with people who believe this? Henry Clay was known as The Great Compromiser, but his greatest compromises didn't accomplish much. At best, they only delayed the civil war. Clay is not a role model for our time. This is not the change America voted for.

One of 50 Mini-Hoovers? Yep.

The Deficit Reduction Plan passed. Austerity will be the name of the game in New York State government for the remainder of this year’s budget. Yesterday the legislature approved a third round of cuts for this year alone. Because New York, like most states and unlike the federal government, must balance its budget, four options, in any combination, were open to the Governor and legislature:

• raise revenue
• seek help from the federal government
• use reserves
• cut the budget.

Revenue increases are under consideration for next year’s budget through an assortment of fee increases, but the elephant in the room – New York's virtually flat income tax brackets is not (top bracket of 6.85% applies to adjusted gross incomes of $20 thousand for single filers, $40 thousand for joint filers.) Although billions of dollars could be raised through adjusting those rates, on Monday Governor Paterson reiterated his disinterest in restoring a progressive income tax system to New York State:

"What I'm saying is if you tax the rich right now, while the economy is disintegrating, you're going to lose jobs and you're also going to lose from the tax base as people leave the state...I don't think that taxing the rich is the best way to go right now."

The Governor is repeating the very same claims made by his predecessor's predecessor, which were refuted by the facts after New York placed a temporary surcharge on upper incomes, in the wake of the post-9/11 recession and a $12 billion New York State budget deficit, in 2003. It also is of some concern that the term "tax the rich" evokes images of class struggle, when advocates simply are calling for restoring a progressive tax system commonly regarded as just since ancient Greece.

Governor Paterson also dismissed pleas to wait for federal stimulus funds:

“Regardless of any action that may be taken at the federal level, it is clear that New York has a responsibility to get its own fiscal house in order. Any stimulus aid we receive will only cover a fraction of our long-term deficit. We cannot simply look to Washington to solve all of our budget problems.”

No advocate called for Albany to "simply look to Washington to solve all of our budget problems," and the inference is unfortunate. Advocates had asked Albany to wait and see to what extent the federal government might help. That's quite different.

Finally, New York’s rainy-day fund was not considered, presumably because times are not hard enough, despite Governor Paterson's claim that "the economy is disintegrating."

The Albany Times Union has a good summary of the cuts, to which you can link here.

[Of particular note: many non-profits get their funding from the pool of funds known as New Legislative Programs. Funding for new legislative programs will be reduced by 20 percent of remaining spending. Here is a link to the chart that details all of the new legislative programs cuts.

FPI Answers How to Balance the Budget (Fairly)

The Fiscal Policy Institute's Frank Mauro and James Parrott lay out the case succinctly in the Gotham Gazette:

As the economic damage ripples out from Wall Street, Gov. David Paterson has proposed drastically slashing state spending. School aid, health care, SUNY and CUNY, child care, program for the elderly, homeless prevention and long-overdue wage increases for social service workers struggling to stay above the poverty line will all feel the effects of the budget ax. While he chops away, though, the governor has steadfastly refused to call for a progressive hike in the state income tax -- an increase that would affect only the most affluent New Yorkers. For the governor, "shared sacrifice" means that the state's low- and moderate-income families and communities must sacrifice while the fortunate few at the top, who benefited the most from the tax cuts of the last 15 years and from this decade's economic growth, will emerge from the budget largely unscathed.

In the 1990's a bunch of New York's plutocrats called themselves "Change New York," went around bullying politicians, and enabled George Pataki and his long reign of tax bracket squashing. Google "Change New York" and you'll find everything but them -- but the fearsome ghost of CNY must be haunting Albany yet. Their acolytes have not been silent.

Anti-government voices have mounted a steady drumbeat calling for steep budget cuts, ostensibly to rein in "out of control" state spending. The reality? State spending has increased to fund important new commitments such as providing medical care to people without health insurance and aiding urban school districts with high concentrations of children from poor families. The state government also dramatically expanded spending on property tax relief and acted to partially undo years of underinvestment in mass transit and public higher education.

Now to think these voices have the public good in mind would be quite naive. Check out The Shock Doctrine (see the Amazon widget in this blog's right column). So what should New York really do?

What should they do? In addition to its investments in infrastructure, unemployment insurance modernization and other measures, the massive economic recovery bill now making its way through Congress includes aid, called “state fiscal relief,” for the explicit purpose of helping states balance their budgets without putting too much additional drag on the economy. Since this legislation is likely to go to President Barack Obama for his signature in mid to late February, the sensible course would be for Paterson and the legislature to wait to see exactly how much “budget balancing” aid New York will receive under the final legislation. The chances are excellent to certain that the state will get several billion dollars it can use right away, since important parts of the “state fiscal relief” is retroactive to Oct. 31, 2008...

Some budget cuts may be unavoidable, but the state should also consider closing tax loopholes such as one that benefits non-resident hedge fund general partners working in New York State and taking other actions to generate budget savings. These could include ending the wasteful and failed Empire Zones program, increasing the use of state engineers rather than contracting out that work to expensive consultants, or using the state's sizable purchasing power to get better prices on prescription drugs.

Raising taxes on high earners would also be a step toward restoring fairness to New York's graduated income tax, which has become significantly less graduated over the years. Today, because of the state's increased reliance on regressive sales and property taxes, New York's middle- and lower-income households pay a higher share of their incomes in state and local taxes than the top 1 percent or the top 5 percent.

Sounds like a plan.