Friday, July 02, 2010

Aid to the States

I've previously taken the position that federal aid to the states should be tied to the states' putting together a sustainable plan for their future budgets. Tim Fernholz, in response to a similar argument, suggests that "refusing state aid is like denying water to a burning building until it is brought up to code".

He has a point. But, while I can't speak for others and he wasn't responding to me, it's not necessary to demand that the states remedy all of their problems before getting aid. My argument is not that states should be denied aid until their problems are solved. My argument is that they must create and implement reforms likely to create and sustain a balanced budget, starting perhaps a couple of years from now.

I wrote my comment seven months ago, after states got money without any requirement for reform. So, how are the states doing on implementing sustainable reforms on their own initiative? For the most part, not well. I respect Fernholz's argument that "States are already making hard choices and cutting their budgets", but really, among the hard choices some states should be facing is whether it's time to reform their tax structures. States that choose to have a regressive income tax, or choose to freeze property taxes based upon the value of land at the time it is purchased, have made a deliberate choice - and easy one - to cater to wealthier interests.

It may be a "hard choice" for the legislators in those states to cut Medicare benefits and housing subsidies, but it's "hard" in a different way than it would be to implement meaningful tax reform or to cut subsidies that benefit groups that are wealthy or who reliably show up for elections and vote. Legislators often seem to be crying crocodile tears when they talk of the impact of their policies on children or the poor. Threaten the flow of campaign contributions, and those tears become real.

Yes, this crisis "is about people", but that was true last year, it's true this year, and unless something changes it's going to be true next year, the year after that, the year after that....

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