States Offer Washington Lesson in Belt Tightening

November 19, 2010

The U.S. government is now borrowing $5 billion every business day and has done nothing more than talk about a plan to reduce its debt.  State governments don't have that luxury, says the Wall Street Journal.

  • In the past three years, 29 states have raised fees on, or cut services for, the elderly and people with disabilities, says the Center on Budget and Policy Priorities.
  • Fifteen states raised sales or income taxes in 2009 or 2010, according to the Tax Foundation.

At some point, Congress and the president will have to grapple with the gap between revenue and spending.  There are many reasons, of course, that state governments and the national one have to manage their finances differently.  

  • Washington is expected to run big deficits during recessions; states can't.
  • Washington issues debt deemed the safest in the world; states have to worry about credit ratings and the prospect of someday being shut out of markets.

Yet in significant ways, state governments offer a hint of what lies ahead for Washington, says the Journal.

One popular state tactic has obvious national implications.

  • New Jersey, Indiana and Minnesota, among others, have trimmed state spending by sending less money to local governments.
  • That pushes onto local officials politically tough decisions about raising taxes, cutting spending or finding major money-saving efficiencies.
  • In the past, Republicans in Washington have proposed shrinking and removing strings from various federal-state programs and letting states figure out how to do the job with less.

There are political lessons to be gleaned from what is happening in some states.  In Indiana, Mississippi and New Jersey, Republican governors appear to be maintaining their popularity while cutting spending.  But, just as Washington has been reluctant to cut Social Security and health benefits, most states have yet to tackle their biggest fiscal issue: the trillions of dollars in pension and health benefits promised to state employees, for which states haven't set aside enough money, says the Journal.

Source: Amy Merrick, Conor Dougherty and David Wessel, "States Offer Washington Lesson in Belt Tightening," Wall Street Journal, November 17, 2010.

For text:

http://online.wsj.com/article/SB10001424052748704405704575596530258949928.html

 

Browse more articles on Tax and Spending Issues