Austerity vs. Progress: The State Tax and Budget Battle in 2011


Recent developments at the state and federal level illustrate a persistent and painful dichotomy between economic forecasts, fiscal policy, and the daily experience of middle and low-income families. As national reports point to positive signs of an economic rebound and improved consumer spending, unemployment remains abysmally high. Unemployment figures released in December marked the 19th consecutive month that the national rate remained above 9 percent. Nearly one in ten Americans are out of work and over 6 million workers have been unemployed for longer than six months. Currently, there are five unemployed workers for every job opening.

What's more, corporations, especially those related to finance, posted historically-high profits at the end of 2010, just as the middle class and working families experienced wage stagnation, and in many cases, decline. Even considering these stark realities, lawmakers at the federal level have enacted a two-year extension of the Bush tax cuts for the wealthiest, while only providing a one-year extension of unemployment insurance. This disconnect reflects a disturbing reluctance to act boldly on behalf of middle and low-income Americans. As Paul Krugman writes in a recent column, "Jobs, not G.D.P. numbers, are what matter to American families."

At the state level, 2011 sessions will likely be characterized by fervent right-wing pursuits of huge budget reductions that threaten the sustainability of a vibrant middle class and economy. For example, Texas, a state once hailed by conservatives as an economic star for its low taxes and minimal regulations, now faces a $25 billion shortfall.  The conservative majority in the statehouse is now looking toward heinous measures to deal with the budget, including completely dropping Medicaid, implementing devastating education cuts, and toll road privatization.

The attempt to push extreme fiscal austerity will be replicated in state legislatures across the country as newly-empowered conservatives are pushing unfeasible, regressive, and economically damaging budget cuts. At the same time, however, conservatives are advocating for enormous tax breaks for the rich and large businesses and will attempt to use the economic climate to pursue privatization. The Right's fiscally and socially irresponsible approaches are as alarming as they are hypocritical; placing the interests of the extremely rich and large corporations over the needs of average American families and small businesses will only exacerbate economic pain and inequality.

The lingering effects of the recession have forced state lawmakers to take extraordinary measures to alleviate fiscal crisis. As states confront collective shortfalls amounting to almost $140 billion in the coming year, progressive leaders face an enormous challenge in building support for necessary investments, even as the general public has grown skeptical of the ability of government to deliver on its promises. To counter this dynamic, progressives are championing several innovative and sound policies to protect taxpayers, promote economic security, support the interests of the middle class, and ensure sound investments in public structures and local communities, including:

  • Corporate Transparency: Good Jobs First notes that with states facing dismal economic and fiscal circumstances, a "perfect policy storm" is forming around augmented transparency and accountability of economic development subsidies, tax expenditures, and corporate tax breaks. Several progressive policymakers are advocating for transparency measures to garner a more comprehensive understanding of spending on subsidies and contracts -- a necessary first step toward fiscal responsibility.
  • Development Banks: There is substantial interest in the creation of state development banks, modeled after the Bank of North Dakota, which serve as a depository for state funds and work successfully with local banks and credit unions to invest in communities, create new jobs, increase state revenues, strengthen local banks, and lower debt costs for state and local government.
  • Corporate and Personal Income Tax Reform: Progressives have further advanced proposals to close corporate tax loopholes and reform corporate and personal income taxes. For instance, combined reporting, which requires multi-state businesses to report profits from all entities, including subsidiaries, for tax purposes, is critical in restricting corporate tax avoidance and nullifying certain tax shelters. And recently, the New York City Council Progressive Caucus released a proposal to impose a temporary income tax surcharge to recapture the tax breaks that the wealthiest households would be receiving from the extension of the Bush tax cuts.

For an extensive review of progressive tax and budget policies and messaging, please see Progressive States Network's Tax and Budget Reform: Policy Options for 2011 and Messaging for Government Action in an Economic Downturn.

For more information on our work on Tax and Budget policy, please contact: Altaf Rahamatulla, Tax and Budget Policy Specialist 212-680-3116, ext 110;

Full Resources from this Article

David Cay Johnston - Scary New Wage Data
Economic Policy Institute - State jobs numbers show little to celebrate
Economic Policy Institute - State of Working America preview: The rich get richer 
Good Jobs First - Show Us The Subsidies
Progressive States Action - Corporate Transparency in State Budgets
Progressive States Network - Messaging for Government Action in an Economic Downturn
Progressive States Network - Tax and Budget Reform: Policy Options for 2011

This article is part of PSN's email newsletter, The Stateside Dispatch.
View other items from this edition