Monday, March 7, 2011

Budget Cuts Roll Downhill

During the mid-term elections Republicans promised to cut deficit spending and increase jobs.  The voters tired of wasteful spending and bloated big government bought the Republicans’ sales pitch and swept them into office.  The voters are about to get what they asked for and they may not like it.
While Republican leaders have shied away from tackling entitlements and defense spending they have shown no hesitancy to go after domestic discretionary spending.  Even though this tactic has zero effect on balancing the budget it will have a drastic and sobering effect on those who voted Republicans into office.
Here is how this works.  The Republicans have proposed to cut some $61 billion dollars out of domestic discretionary spending including funding for: education, innovation, infrastructure, Planned Parenthood, NPR and heating oil assistance for the impoverished to name just a few.  Faced with a reduction in federal funds, state governments, who unlike the federal government must balance their budgets, are looking at huge budgetary cuts as well.  Many states rely on federal funding to stay afloat.  If federal funds are not available they have no choice but to cut services and programs.  State governments in turn provide a substantial portion of the funding local city and township governments need to operate; in some cases as much as 60% of their budget.  Without these state funds cuts in local police, fire, health services, road maintenance etc. are inevitable as are the massive layoffs of lower and middle income workers.
These cuts are not just restricted to public sector programs and jobs.  As local services are cut and layoffs occur people have less money to buy things.  A decrease in the demand for goods and services naturally means a reduction in private sector retail sales, manufacturing and service providers.  As their revenues decrease they are forced to lay off more folks.  And as the purchasing of goods and services decreases so does the corresponding sales tax revenue that is so important for state and local governments.  The circle continues.
We assume that the voters who asked for these austerity measures want to keep their jobs.  We assume that they want someone to respond when they dial 911.  We assume that they want their children to be safe, healthy and well educated.  But we have to find a way to pay for it.
Many people want to reduce the size of the federal government and allow the states to assume a larger role.  But if  you constantly cut federal taxes and federal funding then the financial burden must fall to the states as well.  Cut federal taxes?  Great idea; until you find yourself raising state taxes to make up the difference.  Get rid of the death tax?  Great idea; until you need to raise property taxes to make up the difference.  Dump the Department of education?  Great idea; until you need to float a school levy every other week to keep the doors open.    Somebody has to pay to put cops on the streets.  Somebody has to pay to educate the children, staff the hospitals, fix the potholes and plow the snow.   
Cutting domestic discretionary spending on the federal level affects the poor and middle class workers.  The resulting decrease in goods and services increases unemployment and damages an already struggling economy.  Ultimately, cutting federal spending hurts the very people that voted for the cuts.                   

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