Posted by WARREN MOSLER on June 17th, 2009
Rather than let the states cut essential services and lay off employees with unemployment over 9%, I would give all the states an immediate $500 per capita distribution from the federal government.
It is the same voters and the same taxpayers, so per capita is the way to go.
This gives California most of what it needs and also gives the other states the same per capita distribution to use as desired.
That way it is equitable and helps support aggregate demand during this obvious shortfall.
Officials Push State To Repair Budget
By David Cho, Brady Dennis and Karl Vick
June 16 (Washington Post)— The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.
Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.
The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state’s recession and further dragging down the national economy.
After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.
“After June 15th, every day of inaction jeopardizes our state’s solvency and our ability to pay schools and teachers and to keep hospitals and ERs open,” Gov. Arnold Schwarzenegger (R) said Friday.
California’s budget is also heavily dependent on taxes paid on capital gains and stock options, which have been clobbered during the meltdown of financial markets. State budget analysts made their annual estimate of revenue a month before the crisis spiked in the fall and have been backpedaling ever since.
Consider capital gains — income from sales of stocks or other assets. In California, that income dropped to $52 billion in 2008 from $130 billion a year earlier. It is estimated to be $36 billion this year.
By February, the shortfall was projected at $42 billion over two years.
To close an annual gap now put at $24 billion, Schwarzenegger and leaders of the legislature’s Democratic majority have put aside talk of tax increases to concentrate on cuts.
“A lot of the burden,” Geithner said, “is going to be on them to lay out a path that gets their deficits down to the point where they’re going to be able to fund themselves comfortably.”