This is my first time trying the "diary" feature. Anyway, this article appeared in BNA - a publication for accountants (my wife is an accountant at a Big 4 firm). While it is not really new information, I thought it was interesting that the normally conservative CPA press was taking note.
No. 202
Monday October 20, 2003 Page G-5
ISSN 1522-8800
Tax, Budget & Accounting
U.S. Budget
House Budget Democrats, Watchdog Group
Criticize Impact of GOP Policies on States
House Budget Committee Democrats and a liberal budget watchdog group both released reports Oct. 17 claiming that Republican-sponsored policies, including recent tax cuts, have been economically harmful to local governments and states, most of which are struggling to cope with their own large or record deficits.
"Some of the federal tax cuts enacted in 2001, 2002, and 2003 are reducing state revenues because of linkages between the federal and state tax codes," said a report by the Center on Budget and Policy Priorities.
"While some states have decoupled their tax systems from these federal tax cuts, others have not been able to do so," the report said. "The states that have not decoupled are losing approximately $10 billion during the four-year course of the fiscal crisis."
In addition, the center's report said that the current federal prohibition against imposing taxes on fees people pay for Internet service "is costing states about $6 billion" and the ban on state and local governments collecting sales taxes on Internet or catalog sales is costing those governments about $60 billion.
Budget Democrats Blame Bush Policies
A report released by the House Budget Committee Democratic staff said states are facing a fiscal crisis of "historic proportions" and that policies backed by the Bush administration and the Republican congressional majority have exacerbated the problem.
The report said GOP-sponsored cuts in fiscal year 2004 appropriations bills are "only the tip of the iceberg" and that Congress also "imposes mandates on states in areas such as education, social services, and homeland security without corresponding funding commitments."
The report also said that "federal tax policies send state coffers in the wrong direction and in turn undermine the economic growth needed to reverse state and federal budget woes."
If tax cuts are not offset, "large structural deficits will drive up interest rates, which will make it more expensive for state and local governments to finance capital investment in roads, schools, sewers, and other infrastructure critical to future economic growth," the report said.
"If the federal government pays for its tax cuts by making significant cuts in spending on health, education, social welfare, community development, and other domestic priorities, states and local governments will face pressure to backfill spending on these programs," the report said. "Either way, state and local governments will be forced to raise taxes to meet these higher costs."
Governor, Mayor Appear at Forum
The reports were released at a forum on the impact of federal economic and other policies on state and local governments that was sponsored by the House and Senate Democratic Party leadership. The Democrats brought in Delaware Gov. Ruth Ann Minner (D) and Trenton, N.J., Mayor Douglas Palmer (D) to discuss the difficulties they were having trying to balance their budgets.
Minner said that, to deal with the deficit in her state, she and legislators put together a deficit reduction package that included both spending cuts and some tax increases. "Even as we cut, it became clear that adding revenue had to be on the table," Minner said. "And so our solution to the structural budget problems emerged as a package of budget cuts and cost containment as well as increased revenues."
Palmer told the forum that GOP-backed reductions in a variety of crime, education, health, and other programs have forced cities such as his to cut back on important services for its lower-income citizens.
Noting that the forum was sponsored by congressional Democrats and that no one from the GOP, which controls both houses of Congress, was present, Palmer said, "I'm preaching to the choir because you [Democrats] know this; I really need to be speaking to the Republicans."
Text of the CBPP report, Federal Policies Contribute to the Severity of the State Fiscal Crisis, is available at http://www.cbpp.org/10-17-03sfp.htm.
Text of the report by House Budget Committee Democrats, The Budget Crisis for States: How Republican Policies Have Made the Problem Worse, is available at this link (PDF).
By Bud Newman
Copyright © 2003 by The Bureau of National Affairs, Inc., Washington D.C.