From the Dispatch

Federal Recovery Efforts Saved 8.5 Million Jobs, Stopped Depression

Nathan Newman — Thu, 29 Jul 2010 11:49:48 -0400

When big bank speculation crashed the economy, millions were driven into unemployment. But, according to a new study by two leading economists, the combination of the Troubled Asset Relief Program (TARP) loans to banks, loosening of the money supply, and federal stimulus funds for states and individuals, helped stop a far worse potential full-out Depression that would have left an additional 8.5 million Americans without jobs on top of the 8 million who have lost their jobs since the recession started-- what would have been a nearly doubling of the job loss due to the economic crisis.

The study was written by the bipartisan team of Alan Blinder, a former Vice-Chair of the Federal Reserve, and Mark Zandi, a former McCain economic advisor and head of Moody Analytics. One thing the authors emphasize is the sheer magnitude of the economic collapse faced by the Obama Administration as it came into office: In early 2009, "Real GDP was falling at about a 6% annual rate, and monthly job losses averaged close to 750,000." While the lost jobs have not been regained, the economy was stabilized and GDP growth of nearly 3% began. As the authors note:

The stimulus has done what it was supposed to do: end the Great Recession and spur recovery. We do not believe it a coincidence that the turnaround from recession to recovery occurred last summer, just as the ARRA [federal stimulus plan] was providing its maximum economic benefit.

To put the cataclysm faced by the Obama administration in perspective, the economists estimate that the direct budgetary costs of the recession plus lost revenue due to the economic collapse added up to $2.35 trillion, or about 16 percent of G.D.P. By comparison, the savings and loan crisis of the 1980s cost only about $350 billion in today’s dollars.

Federal Support of the States Decisive for Economic Stabilization: With state revenues plunging due to the recession, the authors specifically highlight the importance of recovery funds that went to the states to forestall job-destroying budget cuts. The authors emphasize that "[s]tate and local government aid is another especially potent form of stimulus with a large multiplier," creating economic growth for every dollar spent.

Unfortunately, the federal spending for the states mostly just counterbalanced revenue losses at the state level, meaning the federal aid was a "defensive stimulus" that "saves jobs rather than creates them." The federal government needed to commit to a much larger job creation program to really counterbalance the revenue losses at the state level.

TARP Bank Bailout Program More Successful, Less Costly Than Media Hype: One unique aspect of this report is its focus on quantifying the jobs saved by TARP and related programs to restore credit in the financial industry. The authors estimate that "the financial-rescue policies are credited with saving almost 5 million jobs." And while headlines blared that TARP would cost $700 billion, in fact, most of the money spent was in the form of loans and equity investments, part of which have been repaid. In the end, the authors estimate that the TARP program will end up costing taxpayers less than $100 billion.

The economic success of TARP and related programs in saving jobs should not obscure the fact that the money used could have done even more to improve corporate responsibility in the financial industry. Analysts like Dean Baker at the Center on Economic and Policy Research have rightly criticized the fact that companies like Goldman Sachs received billions of financial rescue dollars without being required to restrict executive compensation or take many other actions in the public interest. This all emphasizes the need for both the recently passed financial reform law as well as federal and state revenue increases targetting those who benefited from successful recovery programs to help fund job creation for those who still need help.

A Success Despite Program Limits: Still, as Blinder and Zandi argue, the financial rescue package helped to "restore stability to the financial system and to end the freefall in housing and auto markets" just as the ARRA recovery plan saved jobs throughout the economy. 8.5 million jobs saved is only a start in light of the almost 15 million Americans that still face unemployment, but that success was critical in avoiding a Despression that would have turned a challenging budget and jobs situation into a completely catastrophic one.

Resources:
Alan Blinder and Mark Zandi - How U.S. Policy Ended the Great Recession
Dean Baker - Goldman Sach's Golden Parachute

NJ Privatization Panel Report Pushes Ideology Rather than Facts

Altaf Rahamatulla — Thu, 29 Jul 2010 11:48:07 -0400

Since he took office earlier this year, New Jersey Gov. Chris Christie has waged an ideological war on state employees and programs, and advocated for unsustainable and costly privatization schemes. Even in light of overwhelming public opposition to privatization and the significant pitfalls associated with these types of initiatives, the Governor established a privatization task force by executive order in early April, seeking to identify $50 million in savings.

The panel, composed of lobbyists, business interests, and pro-privatization advocates, issued its recommendations earlier this month. The report proposes privatizing programs across the board, including toll booth collections, preschools, state parks, prison food services, bus routes, and car emission inspections. However, the report's conclusions unabashedly promote conservative ideological desires in place of hard data or rigorous research. For instance, a recent In The Public Interest article points out:

The report's extravagant cost-saving claims are unsupported by any detailed data (the tables are littered with 'TBD'- cost savings 'to be determined'), and the scarce figures provided raise more questions than they answer... On p.15 the report claims the state can save $3.2 million by privatizing its One Stop Career Centers, then on p. 31 says 'direct state spending' on the program 'is $3.2 million annually.' Are we to believe the private sector will run these centers for free?

The report has been roundly criticized by several sources, from environmental groups to elected officials. New Jersey Senate President Steve Sweeney reflects, "[c]ertainly state government needs to operate in a more cost-effective way, but our history with privatization is dotted with instances where we’ve had to go back and spend more just to clean up mistakes. We cannot rush into privatizing just for privatization’s sake." The state’s troubled history with privatization is well-documented. For instance, the state has dealt with the Motor Vehicles Commission distributing contracts to politically connected vendors in the 1980s, millions of dollars wasted on contractors for vehicle inspections, the imprudent implementation of the E-Z Pass toll system that was fraught with high cost and delays due to private contractors, and currently, the mismanagement of over 200 lease agreements and contracts with private vendors operating on public land.

That privatization continues to move forward despite such a poor track record reflects pure ideology that the private market delivers the most efficient outcomes, even without demonstrable results. As Progressive States Network has previously detailed, legislative action to limit privatization is necessary to safeguard against the loss of accountability and public revenue that these misguided schemes often produce.

Resources:
Food & Water Watch - Has Water Privatization Gone Too Far in New Jersey?
In The Public Interest - NJ Privatization Report Claims Savings without Evidence
The New Jersey Privatization Task Force - Report to Governor Chris Christie
Progressive States Network - Critics Resisting New Jersey Governor's Push for Further Privatization
Progressive States Network - New Jersey Voters Reject Privatization
The Star-Ledger - NJ Environmental Groups Slam State for Mismanaging Private Vendors at State Parks
The Star-Ledger - NJ Democrats Criticize Christie Administration Report Suggesting Privatization

New Jersey Voters Reject Privatization

Altaf Rahamatulla — Thu, 24 Jun 2010 13:11:14 -0400

On June 15, voters in Trenton, New Jersey, soundly rejected a proposal to sell a majority of Trenton Water Works' infrastructure, including pipes, water towers, and tanks, to a private company. For several years, Trenton Mayor Douglas Palmer argued that water privatization would generate immediate revenue for the cash-strapped city and end its obligation to maintain aging infrastructure in surrounding townships. Community activists, unions, and the Stop the Sale campaign, successfully challenged the Mayor's plan. In the weeks leading up to the vote, polling indicated that 95 percent of city residents disapproved of the initiative.

Opponents of the sale found that selling the city's "most valuable asset" to a private corporation would have resulted in an approximate loss of $25 million annually, a cumulative decline of $400 million in revenue over the next 20 years, an inevitable increase in local taxes, and higher water rates.

History of Consumer Losses in Other Cities: Though water privatization is not as common as other contracted services, there are several problems associated with the effort. For example, following a $38 million fine for pollution resulting from inadequate maintenance of the city's sewer and water systems, the Atlanta City Council signed a 20-year, $428 million contract with the private firm, United Water. The deal led to massive layoffs, a 12 percent rise in sewer bill rates, incidence of slow repairs, and substantial revenue loss due to poor water metering. The City Council voted to rescind the contract in 2002, a move that saved Atlanta millions of dollars per year.

NJ Gov. Christie Pushing Privatization: Even in light of overwhelming public opposition to privatization and the significant pitfalls of these actions, New Jersey Gov. Chris Christie established a privatization panel by executive order in early April, seeking to identify $50 million in savings. As part of this initiative, the Governor has proposed privatizing functions of the New Jersey Network (NJN), the only non-partisan public television and radio news source that exclusively covers the state. Not only would privatization threaten news coverage in the state, but it would also risk the loss of state assets, such as broadcast licenses, towers, studios, and media equipment.

Several organizations are working diligently to protect the state's assets and resist privatization, including the Communication Workers of America (CWA), AFL-CIO, and Free Press. Progressive lawmakers are intent on restoring funding to the network and pushing back against the effort to privatize. Asm. John Wisniewski introduced A 2949, which establishes the New Jersey Public Media Corporation, allowing NJN to operate as a state agency with more autonomy in the areas of hiring, procurement of equipment, leasing of assets, and labor relations. As Progressive States Network has previously detailed, legislative action to limit privatization is necessary to safeguard against the loss of accountability and public revenue that these misguided schemes often produce.

Resources:
AFL-CIO - Trenton Voters Say 'No' To Private to Water
Blue Jersey - Can NJN and NJ News Survive Twin Threats?
Communication Workers of America - NJN Budget,Privatization, Assets, News, and Alternative Structure
Progressive States Network - Critics Resisting New Jersey Governor's Push for Further Privatization
Progressive States Network - State House Reporting and Public Broadcasting on the Chopping Block
The Star Ledger - Trenton Water Works to Settle Divisive Issue
Stop the Sale - The Facts about the Water Deal

Debating Federalism: Conservative False History and Hypocrisy vs. Progressive Collaborative Federalism

Nathan Newman — Tue, 15 Jun 2010 11:57:36 -0400

Conservative state leaders have promoted legislation in states across the country claiming that the health care reform law is an unconstitutional overreach of federal power. While just a handful of the bills were enacted (and most were roundly rejected in states where they were introduced), these attacks on the federal health law are the most prominent example of increasing right-wing legislative agitation declaring various federal laws and actions a violation of the constitution.

Right-Wing “States Rights” Bills: Alaska, Arizona, Idaho, Montana, South Dakota, Tennessee and Wyoming have declared that federal firearm regulations don’t apply to weapons manufactured in those states. Utah has rejected not only the federal health care reform bill, but declared federal lands subject to state eminent domain and asserted the “inviolable sovereignty of the State of Utah under the Tenth Amendment to the Constitution.” Alabama, Alaska and Wyoming have joined Utah in passing resolutions generally denouncing the supposed violations of their state sovereignty. And right-wing legislators have introduced bills to institute a “constitutional tender” requiring a gold standard for money in their states, declaring federal cap-and-trade proposals unconstitutional, making it a state crime for federal agents to arrest anyone in a state without permission from a county sheriff, and more generally nullifying claims by the federal government to regulate most interstate commerce.

Challenging the Right-Wing Constitutional Narrative: The challenge for progressives from this “states rights” movement is not that any of these laws are likely to survive in court, but that conservatives too often get away with claiming to stand for constitutional values without significant challenge from progressives. The reality is that the right wing has no credibility in promoting their states’ rights arguments and should be challenged more directly. As this Dispatch will outline, their arguments fail on multiple grounds:

First, conservative constitutional history is dead wrong. The progressive vision of collaborative federalism between federal and state governments clearly reflects the “original intent” of the Constitution’s creators – including those who promoted the Constitutional Amendments enacted throughout our history.
Second, conservative leaders are constitutional hypocrites, talking about “states rights” even as they support federal laws that restrict state authority in order to protect corporate special interests.
Finally, unlike conservatives, progressives practice real respect for state authority by promoting and supporting state innovation and flexibility, a far more compelling practice of federalism than the rigid and false constitutional doctrine promoted by the right wing.

Progressive legislative leaders need to clearly engage the public and promote our story of a Constitution that was meant to promote a vigorous federal power in promoting equal rights and the general welfare, even as federal leaders should respect and strengthen the capacity of states to take action beyond minimum standards set by the federal government.

Resources
Tenth Amendment Center - Tenth Amendment Movement
The New York Times - States’ Rights Is Rallying Cry for Lawmakers

Table of Contents:

- Conservatives Have Constitutional History Wrong

- Conservatives are Hypocrites in Using Federal Power to Undermine State Authority

- Progressives Promote a Collaborative Federalism that Respects State Authority

- Highlighting the Progressive Model of Collaborative Federalism

Conservatives Have Constitutional History Wrong

Conservative activists try to sell a history of a federal government designed to be weak with limited power, where national leaders without sanction by the American people have taken on responsibilities and powers reserved to state governments. Such a story just flatly misrepresents constitutional history.

The 1787 Constitution Promoted Strong Federal Power: Even when the Constitution and the initial Amendments were drafted in the 18^th century, limited federal power was not what was envisioned by those who drafted. It was George Washington who deployed troops in Pennsylvania to collect excise taxes on distilleries in the suppression of the so-called Whiskey Rebellion of 1794, John Adams who enacted the 1798 Alien and Sedition Acts to regulate newspapers across the country, and Thomas Jefferson who negotiated the Louisiana Purchase and carved out new states. And, as the Supreme Court Justices appointed by those founding drafters of the Constitution said in 1819 in their McCullough v. Maryland decision, affirming the wide authority of the federal government:

Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are Constitutional.

In fact, the progressive complaint of the period before the Civil War was that federal power was vigorously deployed but for the wrong ends. The federal government and courts intervened to overturn state debt relief laws meant to benefit small farmers and other debtors and generally attacked other state laws seen as infringing property rights.

And most obviously, federal government power was used to protect slave owner interests, including overturning state laws in the North seen as impeding the return of runaway slaves. State laws requiring a fair hearing to establish a former slave status before federal agents could return a free black to the South under the Fugitive Slave Act were struck down by federal courts. The Dred Scott case outraged Northern voters because it declared that Southern slaveholders could bring slaves into free territories and ignore the laws freeing slaves voluntarily brought into those jurisdictions.

The Civil War and the New Birth of Freedom Expanding Federal Authority: Where the present-day Tenth Amendment proponents fail history utterly is in systematically denying that the Civil War and the subsequent Amendments enacted ushered in a new Constitutional order in regard to federalism. (The following history is drawn partly from the Brennan Center for Justice’s A New Birth of Freedom: The Forgotten History of the 13th, 14th and 15th Amendments).

The immediate post-Civil War amendments – the 13^th, 14^th and 15^th - created a new constitutional mandate of not only freedom and voting rights for freed slaves, but more broadly gave Congress the “power to enforce, by appropriate legislation” (Section 5 of the 14^th Amendment) the protection of the “privileges or immunities” of Americans overall and to protect them from state abuses denying them “life, liberty or property.”

The “founding fathers” of this new post-Civil War constitutional order would back up these Amendments with federal laws of wide scope, including the Civil Rights Acts prohibiting both public and private discrimination and a federal Freedmen’s Bureau that would operate schools, provide health care, and directly operate other programs in states throughout the South.

Senator John Sherman of Ohio, the brother of General Sherman, summarized the expansive “original intent” of those who drafted the post-Civil War Amendments: “[it] secures to every man within the United States liberty is its broadest terms," with all the enforcement power for Congress needed to make that liberty a reality. While federal courts would back off from the expansive meaning in the wake of the Klan-related violence that ended Reconstruction, modern federal laws supporting health care and education provide exactly the same liberty for the American people that those who enacted the Freedmen’s Bureau’s education and health care programs saw as necessary for liberty in the wake of the Civil War.

Enhanced Federal Authority under the Sixteenth and Seventeen Amendments: Nearly fifty years after the Civil War Amendments, the Progressive era would see new demands for wealth redistribution and stronger federal regulation of corporate power. These populist demands would be embodied in the passage of the Sixteenth Amendment establishing the income tax and the Seventeenth Amendment allowing direct election of U.S. Senators, which would each further these goals and restructure federalism.

A federal income tax was recognized as more than a revenue source; by deciding who was taxed and who was not, it would be a tool of regulation by the federal government of the economy as well. As conservative Seventh Circuit Judge Frank Easterbrook said at a Federalist Society event in 2006, bemoaning this change:

The Sixteenth Amendment gave the federal government the power to control one hundred per cent of the entire economy. It can tax income. It can not tax income - achieving its goals via tax expenditures, that is - by encouraging those things that aren't taxed. It can tax and then subsidize using the dollars that it's just collected from you, or it can grant the dollars back on condition. So that combination of powers… gives the federal government control over almost anything it chooses to control.

If the Sixteenth Amendment changed the budgetary nature of federalism in favor of federal authority over economic activity, the Seventeenth Amendment, which required the direct election of U.S. Senators, changed the political nature of federalism. Structurally, “states rights” had their strongest embodiment in the original Constitutional clause that allowed state legislatures to control the election of Senators, meaning that those Senators would beholden to the institutional interests of state governments.

The direct election of U.S. Senators, joining the direct election of Congressional Representatives, meant that the federal government was now responsible directly to the individual voter and only to the individual voter. In The Seventeenth Amendment and the Death of Federalism, Professor Ralph A. Rossum notes, again unhappily from his conservative viewpoint, that "the original federal design has been amended out of existence and is no longer controlling—in the post-Seventeenth Amendment era, it is no more a part of the Constitution [than] the Constitution’s original fugitive slave clause."

While conservative courts would resist this progressive constitutional revolution for two more decades the New Deal courts would finally establish the broad principle that popular power expressed at the federal level would trump corporate interests.

Contradictions in “States Rights” Rhetoric: The fundamental contradiction in conservative constitutional arguments over federalism is that, even as some activists try to ignore every Amendment after the Tenth to sustain their attacks on federal authority, many other conservative activists, including many in the Tea Party movement, are agitating to repeal the Sixteen and Seventeen Amendments precisely because they admit those later Amendments have eliminated the original limits on federal authority. And this regret about the passage of the 17^th Amendment extends even to conservatives on the Supreme Court; in a speech reported in the Harvard Crimson in 2004, Supreme Court Justice Antonin Scalia said that the 17^th Amendment was “a bad idea.” Ultimately, conservatives can’t claim the enduring importance of the Tenth Amendment while denouncing the later constitutional amendments that superseded it.

Resources
Brennan Center for Justice - A New Birth of Freedom: The Forgotten History of the 13th, 14th and 15th Amendments
Professor Ralph A. Rossum - The Seventeenth Amendment and the Death of Federalism
Federalist Society - Are Constitutional Changes Necessary to Limit Government?

Conservatives are Hypocrites in Using Federal Power to Undermine State Authority

Beyond the false history and contradictions involved in conservative constitutional rhetoric, the reality is that conservatives in history and today have never respected state authority when it is marshaled on behalf of progressive policies. In fact, despite conservative constitutional history mythology, right-wing legal decisions preceding the New Deal were incredibly hostile to state authority, striking down a series of state laws from the minimum wage to railroad regulations in the name of federal supremacy, preempting any state law that came close to any area of presumed federal authority (whether Congress had created a law in that area or not), and more generally circumscribing state authority under a doctrine called "substantive due process."

Right-Wing Legislative Assault on State Authority: In the present, nothing illustrates the hypocrisy of the conservative movement on federalism more than the current debate on cracking down on abuses by the financial industry. Early in this past decade, state predatory lending laws which sought to limit abuses by subprime lenders were shut down by the Bush Administration using the club of federal power, yet conservative groups largely supported that wildly destructive attack on state authority. And when progressive federal leaders sought to restore greater authority to state legislatures and attorneys general to target abuses in their states by national banks, conservative elected leaders and organizations lined up to support amendments to undermine that increased state authority over local financial abuses.

As we have described in the past, this is just part of a multi-decade fight by the conservative movement to undermine state authority to act on behalf of workers, consumers, civil rights and environmental protection. In fact, the conservative majority in Congress voted over 57 times between 2001 and 2006 to preempt state laws, including action to preempt state limits on air pollution, to preempt state regulation of contaminated food, and to block tougher state regulation of Internet "spam."

The Conservative Legal Assault on State Authority: With pro-corporate appointments to the courts by conservative Presidents, courts not only upheld the preemption of local predatory lending laws, but supported the overturning of pro-union state laws, radically reduced punitive damages against Exxon-Mobil approved under state law, and exempted medical device manufacturers from liability under state laws if the FDA approved the device.

And this hypocrisy on federalism extends to groups supposedly speaking on behalf of state interests, including the American Legislative Exchange Council (ALEC). In multiple legal briefs, ALEC has called for using federal law and the federal Constitution to overturn state laws - from striking down Chicago gun regulations to forcing Michigan to allow mail-order wine sellers to sell to their residents from out-of-state to overturning a Massachusetts state law that prohibited state agencies from doing business in Burma.

Conservative Health Care Proposals Highlight Hypocrisy: Nothing highlights this conservative hypocrisy on state authority more than the health care debate. Even as the right-wing denounces the recent federal health reform law as violating state authority, the main planks in conservative health proposals proposed by Congressional leaders have been far clearer attacks on state authority.

When conservative leaders controlled the U.S. House of Representatives, they repeatedly approved bills allowing insurance companies to sell across state lines and ignore local state consumer protections. “These plans will undermine state insurance reform efforts designed to spread costs broadly,” noted Ami Gadhia from Consumers Union, publisher of Consumer Reports, at the time.

Similarly, the other most touted reform proposed by conservative leaders has been to override state medical malpractice laws through "tort reform" where patients would lose legal rights they previously had under individual state law. When President Bush was touting “medical malpractice reform,” the National Conference of State Legislatures emphasized its opposition to “any federal preemption of state authority within the civil justice and tort law areas” and the “voiding of state authority and the hard work of so many state legislatures.”

Resources
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - The Assault on the New Deal Preemption Standard
Progressive States Network - Hypocrisy of "State Rights" Conservatives on Health Care
U.S. House Oversight and Government Reform Committee - Congressional Preemption of State Laws and Regulations
Open Salon- What the Right Won't Admit About Tort Reform

Progressives Promote a Collaborative Federalism that Respects State Authority

Progressives should proudly contrast their far more consistent respect for state authority. While progressives support strong minimum federal standards of protection for individuals and communities, they also far more consistently protect state authority and strengthen state capacity to take action to meet local needs and goals beyond those minimal standards.

The New Deal and The Great Society Strengthened Regulatory and Budgetary Capacity of States: The New Deal may have strengthened federal action, but it also specifically empowered states to act in areas like the minimum wage and child labor, which previously had been blocked by federal courts, and the New Deal Supreme Court was far more willing to allow states to regulate in areas where the federal government was also taking action.

As we have detailed, progressives have always made strengthening the budgetary capacity of states to act on local problems more effectively a priority. Under the Great Society, for example, grant-in-aid programs from DC to the states increased 68% in real dollars between 1964 and 1968. Notably, the federal recovery act promoted by President Obama last year directed most of its dollars not through direct federal programs but through the states where local leaders would have the flexibility to use those dollars to address state budget and job development needs.

Obama Administration Strengthened State Authority: On the regulatory front, the Obama administration last year emphasized its new commitment to respecting state regulatory rules by issuing a broad Memorandum on Preemption to all heads of executive departments and agencies, ordering them to avoid the preemption language routinely included in Bush-era regulatory preamble statements or in codified regulations unless there is "full consideration of the legitimate prerogatives of the States and with a sufficient legal basis for preemption." This commitment to respecting state authority was embodied in the administration’s recognizing the authority of California and thirteen other states and the District of Columbia to take action on “clean car” regulations – state action blocked by the previous administration – and incorporating those state standards into its own plan for tighter auto emission and gas mileage standards.

New Federal Health Care Law Embodies Collaborative Federalism: As an example of progressive federalism, even as the new federal law provides for stronger minimum standards for health care, it was designed to give great flexibility to states on how implementation would work in each state and was designed to strengthen the capacity of states to address specific local needs.

As the National Academy for State Health Policy describes, “States will have a significant role in the implementation of federal health reform.” This includes flexibility in how to design the health exchanges where consumers will purchase insurance, full preservation of state authority to establish stronger consumer protections than any federal standards, and even the ability to opt-out of the whole federal system where states can demonstrate a plan to achieve the goals of broader coverage more effectively. This latter option, described in the bill's Sec. 1332, makes it possible for states to combine all available subsidies that would normally flow to individuals and businesses into an alternative state system.

Resources
Progressive States Network - Restoring State Authority: An Agenda to Restrict Preemption of State Laws
Progressive States Network - Obama Affirms Importance of State Policy Innovation by Making California Emissions Rules a National Standard
David Walker - The Rebirth of Federalism
The White House - Memorandum on Preemption
National Academy for State Health Policy - Supporting State Policymakers' Implementation of Federal Health Reform

Highlighting the Progressive Model of Collaborative Federalism

What this history emphasizes is that progressives need to more aggressively challenge conservative posturing that they are the defenders of federalism. Progressives can highlight not only that conservatives promote a false history to justify their attacks on health care and other legislation, but they also practice a deep hypocrisy in failing to respect the state authority when they themselves control the levers of federal power.

Progressives should more clearly highlight the principles of collaborative federalism that have been embodied in progressive practice since the New Deal:

respect state regulatory authority to take action beyond minimum federal standards;
provide federal funding to strengthen state capacity, and;
design federal programs to allow flexibility in state implementation to meet local needs.

Ultimately, the American debate over federalism was never supposed to be about “states rights” – as if the rights of one specific government body over another was some sacred principle – but rather about how best to embody the will of American voters to address national goals while preserving the flexibility and liberty to meet specific local needs within that national framework.

The rigid legalistic federalism promoted by the right is wrong not only on historical grounds, but also because it fails to provide a practical framework for addressing the creative tension between national goals and local needs. Instead, the progressive model of collaborative federalism continues to be the only framework to address that tension and which reflects the rich tradition of constitutional reform that has brought this nation from its founding through the Civil War to the New Deal and into the present day.

Maine Voters Reject Tax Reform Initiative, but Approve Infrastructure Investment

Altaf Rahamatulla — Thu, 10 Jun 2010 16:58:23 -0400

This past Tuesday, Maine votersconsidered legislation which would have reformed the state's tax structure and bond measures that will bolster infrastructure investment.By a large margin, Mainers rejected a law passed last June, LD1495, to lower the top income tax rate from 8.5 percent to 6.5 percent for state residents earning less than $250,000 annually by broadening the sales tax to include different services and shifting tax burden to nonresidents by increasing the meals and lodging tax from 7 to 8.5 percent.

Supporters of the reform initiative, most notably, Maine AFL-CIO, some regional Chambers of Commerce, the Maine Council of Churches, and the MaineCenter for Economic Policy Institute (MECEP), contended that itrepresented the most substantial reform of the state's tax code in almost four decades. Overall, MECEP found that the "modestly...progressive" package would have provided "direct help for families struggling to survive in this troubling economic climate, and it is money that will stay in the local and state economies and buoy Maine small businesses." Opponents, including conservative groups, the state's Realty Association, and businesses tied to the tourism industry,who argued against shifting some of the state's tax burden to tourists and expanding the sales tax base to include different categories of services, gatheredthe necessary signatures to place the issue up for referendum as Question 1.

While the legislation would have reduced the income tax burden for 95 percent of Maine families and made it easier to apply and receive property tax relief through the state's circuit breaker program, advocates believe the campaign to support reform faltered due to the complexity of the message. While many voters readily saw expanding the sales tax base to services as a tax increase, they were skeptical that the state would deliver on lowering the income tax burden. Sen. Joe Perry, one of the authors of the legislation, reflected on the results, "I never thought I'd seethe public vote to raise their own taxes."

The ballot defeat additionallyindicates that while the current sales tax in most states is outdated and designed for an industrial economy in which most consumer spending went to buying goods, expanding the sales tax to services is still a challenging message to articulate to voters.

Although Mainers rejected changes to the state's tax structure, voters made clear that they support spending for long-term investments to spur economic development by approving bond measures for "$26.5 million for an offshore wind energy demonstration site, related manufacturing and campus energy conservation; $47.8 million for highways, railroads and marine facilities; and $10.25 million for clean water projects."

State Broadband Awardees May Apply For Additional Funds

Fabiola Carrion — Thu, 10 Jun 2010 16:51:25 -0400

State governments may seek additional funding for up to three additional years on broadband projects. The announcement comes from the National Telecommunications and Information Administration (NTIA) who recognized that "better data and strategic planning are needed on the state level.

Launched last year, NTIA's State Broadband Data and Development Grant Program assists states in gathering data on the availability, speed, and location of broadband services. Originally funded for a two-year period, it has now been extended to five. States can now apply for three additional years of mapping and data collection work, as well as other initiatives, including state broadband task forces or advisory boards, technical assistance programs, local or regional technology planning efforts, and programs to promote increased computer ownership and Internet usage.

As we detailed in a previous Dispatch, the American Recovery and Reinvestment Act apportioned billions of dollars in funding for state broadband initiatives, of which more than $100 million in grants have already been distributed. One example of these efforts is Maine's "Three-Ring Binder" network, which was launched thanks to $25.4 million awarded by the NTIA to reach the under-served and unserved rural areas of Maine. Rep. Cynthia Dill introduced LD 1778 to classify dark fiber as a utility and broadband provider to create a broadband sustainability fund to support "last mile" high-speed Internet infrastructure.

Private Prison Firm Exploiting Broken Immigration System

Suman Raghunathan — Thu, 27 May 2010 11:20:36 -0400

Who benefits from hyping criminal enforcement as the solution to the immigration issue?

As a Service and Employees International Union (SEIU) campaign highlights, one key player profiting off the nation's broken immigration system is the private prison firm, Corrections Corporation of America (CCA). CCA operates and profits significantly from private prisons across the country, many of which house immigrants in detention, a kind of legal limbo in which immigrants are imprisoned while their cases are being considered, or who are in the process of being deported. Roughly 40 percent of CCA's profits stem from operating jails that house immigrants. In fact, the corporation earned over $1.7 billion in revenue in 2009 alone -- much of it from contracts with the Department of Homeland Security's Immigration and Customs Enforcement (ICE), the US Marshals Office, and the Federal Bureau of Prisons to cope with the influx of nonviolent immigrants in the nation's prison system. CCA has also been a long-time funder of the American Legislative Exchange Council (ALEC) and member of its Private Sector Executive Committee, which advocates on behalf of CCA to push prison privatization as a model for states.

While most believe prisons are operated by state or federal governments, they are increasingly privatized. As the number of immigration prosecutions continue to skyrocket and comprehensive immigration reform languishes in Washington, DC, this makes the business of operating prisons all the more lucrative for private firms. According to the Transactional Records Access Clearinghouse (TRAC), immigration prosecutions reached record levels in federal fiscal year 2009. The Department of Homeland Security initiated 67,994 immigration prosecutions that year alone, a 459 percent increase from 2000 and a 973 percent increase from 1990.

Filling Up Prisons with Non-Violent Immigrants: In addition, federal immigration authorities are increasingly targeting nonviolent immigrants, whose only offense is attempting to unlawfully cross the border, via efforts such as Operation Streamline, which focuses on apprehending nonviolent border-crossers. According to a May 2010 study by the Warren Institute at the University of California, Berkeley Law School, projects such as Operation Streamline that focus on immigrants who haven't committed any crime in the US divert precious federal resources from apprehending drug cartels and human traffickers that frequently operate with impunity along stretches of the US-Mexico border and are responsible for much of the violence in the region. These record numbers of nonviolent immigrants are, in turn, filling jails and immigration detention centers to capacity: contributing to growing costs to states and higher profits for private prison companies like CCA.

The Failures of Prison Privatization: Both federal and state governments have utilized private firms to operate prisons, despite evidence of systematic failures. Privatization only exacerbates the challenges faced by states, communities, and families dealing with the broken immigration system. For example, the Florida Center for Fiscal and Economic Policy finds that there is no compelling evidence that prison privatization has led to savings, while the Private Corrections Institute analyzes several issues with privatization, which include “major riots, sex abuse scandals… improper billing by private prison companies… employment law violations, higher employer turnover rates, increased levels of prisoner-on-prisoner and prisoner-on-staff violence, lack of transparency and public accountability, and higher recidivism rates for inmates released from privately-operated prisons.”

When privatization involves prisons and detention centers, the profiteering comes at the expense of constitutional safeguards, democratic oversight, and public trust. In this case, it also undermines legislative efforts to promote progressive immigration reform. Lawmakers should take action to prevent such debacles from occurring by either halting failed privatization schemes. For example, Indiana Rep. Gail Riecken's introduced a bill to end privatization of social services in her state. Legislators can also consider requiring augmented transparency of state contracting, much like initiatives in Alabama, Hawaii, and Vermont.

Resources:
Immigration Policy Center - US Border Enforcement Prioritizes Non-Violent Migrants Over Dangerous Criminals
Immigration Policy Center - New Data on Federal Court Prosecutions Reveal Non-Violent Immigration Prosecutions Up
Transactional Records Access Clearinghouse - Immigration Prosecutions at Record Levels in FY 2009
Immigration Policy Center - Throwing Good Money After Bad: Immigration Enforcement Without Immigration Reform Doesn't Work
University of California, Berkeley Law School Warren Institute on Race, Ethnicity and Diversity - Assembly-Line Justice: A Review of Operation Streamline
Florida Center for Fiscal and Economic Policy – Are Florida’s Private Prisons Keeping Their Promise
Private Corrections Institute – Quick Facts About Prison Privatization
Private Corrections Institute – Report on Prison Privatization Plagued with Conflicts of Interest, Faulty Data, Political Connections
Progressive States Network - Privatization During an Economic Downturn: Still Inefficient and Problematic
OneAmerica - Voices from Detention: A Report on Human Rights Violations at the Northwest Detention Center in Tacoma Washington
AFSCME - Prison Privatization Resources

State Revenue Increases Across the Nation Continue to Ease Pain of Downturn

Altaf Rahamatulla — Mon, 24 May 2010 13:28:26 -0400

Tea Party protests are purportedly an indication of Americans demanding tax and spending cuts. Yet, last Tuesday, Arizonans overwhelmingly approved Proposition 100 to temporarily increase the state's sales tax by one percent for the next three years. The measure is estimated to generate $1 billion in additional revenue per year. In spite of opposition to the tax cuts by many of the Legislature's conservative leaders, Republican Gov. Brewer campaigned diligently for the increase, emphasizing, "If we don't get the revenue we will have to cut another billion dollars."

This vote in Arizona, a state whose Legislature is so tax averse that it has enacted 42 tax cuts to its three major revenue sources since 1992, not only highlights the depth of the fiscal crisis, but additionally demonstrates that voters across the political spectrum recognize that budget shortfalls cannot be solved solely by budget cuts. The approval of the Arizona sales tax increase follows a strong vote for raising income and corporate taxes in Oregon in January.

As this Dispatch will detail, these votes mirror actions taking place in both conservative and progressive states and localities around the country. In 2009 and 2010, states have enacted a wide-ranging set of revenue increases to cope with cumulative 2010 and 2011 deficits of approximately $375 billion. Although revenue forecasts are improving, states are still reeling from historic declines in the past year.

What is remarkable is that the anti-tax movement has racked up such regular failures in the crisis, as even many state leaders previously signing "no taxes" pledges have reneged on them. Instead, popular demand for new revenue to avert budget cuts has driven legislative movement on progressive tax and budget policy.

Adding to the general public support has been research consistently showing that progressive revenue increases during a downturn is a better alternative to cuts in order to promote growth and protect vulnerable populations suffering during the recession.

Finally, this Dispatch will outline some of the effective messaging and research to demonstrate to voters that progressive measures and tax increases are economically sound and go to the programs they want preserved -- the critical step in the success of revenue campaigns.

Table of Contents:

- Red State Tax Increases and the Failure of the Anti-Tax Movement

- Wave of High-Income Tax Increases

- Eliminating Corporate and Business Tax Loopholes

- Raising and Reforming Sales and Excise Taxes

- Challenging Regressive Budget Actions

- Making the Case for Progressive Tax Policy

- The Public Supports Progressive Investments-- But Needs to Be Sold on Government Effectiveness

- The Need for Continued Federal Support

- Conclusion

Red State Tax Increases and the Failure of the Anti-Tax Movement

On top of the vote in Arizona, the Kansas Legislature recently approved a one cent sales tax increase that will take effect July 1 and bring in over $3 million in revenue to avoid cuts in school programs. Despite a vitriolic Tea Party campaign against revenue generation, St. Louis, Missouri passed a half-cent sales tax increase to restore bus lines that had been defunded and to eventually expand the city's mass transit system.

In South Carolina, the House recently voted to override Gov. Mark Sanford's veto of HB 3584 and approved an increase of the state's cigarette tax by 50 cents. Several conservative South Carolina lawmakers, who had previously signed on to an Americans for Tax Reform letter to not raise taxes, refused to abide by it and voted for the tax as well. Similarly, two Kansas House members who had signed the pledge were the margin of victory for passing the sales tax in that state. Though regressive, the new sales and excise taxes will provide funding for education and other essential services.

And even in fervently and vocally anti-tax Georgia, the Legislature imposed a temporary 1.45 percent hospital fee and raised other fees to cut the budget deficit.

Myth of an Anti-Tax Electorate: Many of these conservative leaders are just following the lead of voters across the country. Even before Arizona and Oregon votes this year, voters and lawmakers have continually rejected anti-tax initiatives, such as the so-called "Taxpayer Bill of Rights" (TABOR), over the last five years. Just last November, voters in Maine and Washington disapproved of these types of deleterious measures. In 2008, similar initiatives were defeated in Massachusetts, North Dakota and Oregon. In all three states, proposed initiatives that would have slashed or, in the case of Massachusetts, completely eliminated the income tax, were rejected at the polls. In 2006, voters in Maine, Nebraska and Oregon each rejected TABOR ballot initiatives.

In response, legislatures have increasingly taken their cue from voters, not the empty threats of the anti-tax ideologues. Of the 28 right-wing attempts to introduce TABOR legislatively, Colorado is the only state that has adopted this disastrous policy. As the Ballot Initiative Strategy Center finds, "[t]he Grover Norquist, Club for Growth, Glenn Beck, Tea Party crowd tried to use the bleak budget picture as an opportunity to ratchet down even harder as states look to find the revenue necessary to protect priorities, create jobs, and get their economies going -- but voters rejected that failed approach."

Raising Taxes is the Norm in Recessions: In 2008 and 2009, over 30 states increased taxes as a response to the recession, as the March 2010 map above displays-- with additional states like Arizona, South Carolina, Georgia and Kansas filling in additional states since then. As CBPP indicates, this parallels a general trend of states increasing revenue during recent economic downturns--"[i]n the recession of the early 1990s, some 44 states raised taxes; in the early 2000s, some 30 states did so." Raising revenue is typical during recessions.

Resources:
Ballot Initiative Strategy Center - Fiscal/Budget Issues
Progressive States Network - Public Support for Progressive Taxation & The Failure of the Anti-Tax Movement

Wave of High-Income Tax Increases

In 2009 alone, California, Connecticut, Colorado, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, and Wisconsin instituted either a permanent or temporary reform of personal income taxes. Many of these states have increased revenue by over 5 percent.

This session, the Hawaii Legislature capped itemized deductions at $50,000 for joint filers with income over $300,000, or at $25,000 for individuals earning over $150,000. The move will generate $33 million next fiscal year. This follows the state's high-end income tax increase last year after the Legislature overrode the Governor's veto to raise three top rates, with the highest increasing from 8.25 to 11 percent. The increase only applies to the top 2.6 percent of tax filers in the state.

At the end of January 2010, voters in Oregon overwhelmingly approved two ballot initiatives that ratified legislative action last year to increase high-end personal income and corporate taxes. The initiatives will only affect 2.5 percent of the state -- the richest individuals and corporations -- and generate over $700 million in the upcoming fiscal year to protect vital services.

William Gates Sr., father of Bill Gates, is leading an effort in Washington to create a state income tax for wealthy state residents. I-1098 would impose a 5 percent tax on joint filers above $400,000, and individuals making over $200,000, and a 9 percent on families making over $1 million. The proposal would also increase the business and occupation tax. In a recent article, Gates, along with Gerald Grinstein and Michael DeBell, writes, "this proposal offers a clear choice to voters: assist small businesses, cut taxes for the middle class and support much needed investments in our schools and in health care — or keep the status quo, which penalizes small business and shortchanges our children and families." If 241,153 valid voter signatures are successfully gathered by July 2, the measure will appear on the ballot in November.

In Washington DC, Councilmember Michael Brown has proposed the creation of two new income tax brackets, 8.9 percent over $250,000 and 9.4 percent over $1 million.

Resources:
Center on Budget and Policy Priorities - Raising State Income Taxes on High-Income Taxpayers

Eliminating Corporate and Business Tax Loopholes

Corporate income tax revenue as a share of all taxes has fallen dramatically. In 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. Just last year, 11 states considered or enacted business tax increases to help deal with budget deficits and others have enacted or considered them this session. States have strategically responded to corporate tax erosion by a number of approaches, from combined reporting to eliminating wasteful tax credits.

Wisconsin enacted combined reporting in the 2009-2010 session. Combined reporting requires multi-state corporations to report profits from all entities, including subsidiaries, for tax purposes. Furthermore, combined reporting is a key policy to restrict tax avoidance and nullify certain tax shelters. Currently, over 20 states have implemented the policy.

This session, the Iowa Legislature approved HF 2527/SF 2380, which enacts modest tax credit reform, including a process to regularly examine credits, temporarily suspending the film tax credit, and in total, reducing inefficient credits by $115 million. Unfortunately, many states still pursue costly and misguided expenditures without properly assessing their value or the total revenue loss to the state.

CBPP finds that certain credits, such as those utilized for job creation, do not benefit states economically. They report, "[j]ob-creation tax credits raise a number of issues of cost and effectiveness. While 22 states have broad, statewide credits similar to those being proposed, and about another 12 states have narrower credits targeting specific industries or areas of the state, there is no evidence that these states’ economies are doing better than other states’ economies...Indeed, a state-level effort to stimulate the economy in this way can inadvertently create a fiscal drag on the state and national economy."

Tax Credit and Budget Transparency: One key step to reform is augmented transparency of how much money states are actually losing on tax credits, subsidies, contracts and corporate tax giveaways. This session, Colorado Rep. Sal Pace and Sen. Morgan Carroll introduced HB 1350, which requires any entity that receives public funds for the purpose of economic development to file an annual report to the Colorado economic development commission on jobs created, wages paid, and other important categories. If the state finds that a recipient of an economic incentive has not complied with requirements, it has the authority to “clawback,” or recapture any public money expended on the economic incentive. The measure passed the House, but ultimately failed in the Senate.

However, Gov. Bill Ritter issued Executive Order D 2010-009, which contains similar principles as the bill and directs the Colorado Economic Development Commission to compile a report on how the state can effectively track grants, loans, or tax credits issued for economic development and job creation purposes.

In late April, the Massachusetts House unanimously passed the Revenues and Expenditures Transparency Act, H 2972, to create a searchable, online database that details state spending and revenue sources. Lawmakers also approved an amendment to create greater taxpayer accountability by providing increased transparency around some business tax credits. As House Chairman of the Joint Committee on Revenue Rep. Jay Kauffman explains, "[p]ublic access to the way we raise and spend money is essential, enabling us to make more-informed decisions for the tax-paying constituents who elect us to serve on their behalf."

As U.S. PIRG comprehensively details in Following the Money: How the 50 States Rate in Providing Online Access to Governm ent Spending Data, which analyzes and ranks each state on their development of comprehensive, one-stop, one-click budget accountability and accessibility, some of the major benefits of corporate transparency, include promoting sound fiscal practices, identifying spending inefficiencies, reducing corruption, and encouraging a more focused budget process.

Several lawmakers across the country have introduced various transparency efforts in order to safeguard taxpayers, foster better budgeting practices, promote good jobs, and garner savings. PSN has model corporate transparency legislation that aims to collect comprehensive information regarding state subsidy allocation, contract distribution, tax expenditures, and corporate taxation trends.

Resources:
Center on Budget and Policy Priorities - A Majority of States Have Now Adopted a Key Corporate Tax Reform — “Combined Reporting”
MASSPIRG - House Adopts State Spending Website
U.S. PIRG - Following the Money: How the 50 States Rate in Providing Online Access to Governm ent Spending Data

Raising and Reforming Sales and Excise Taxes

Similar to last year, a number of states are pursuing sales and excise tax increases. Some are more targeted, such as Wyoming taxing wind energy, while others are drilling down on particular products or on Internet retailers.

Candy and Soda Taxes: This year marked a great interest in pursuing taxes on candy and soda as both Colorado and Washington State raised taxes on the products. New York Gov. David Paterson has led an effort both this year and last to assess higher taxes on sugary beverages while reducing taxes on diet drinks. New York City Mayor Michael Bloomberg, who supports the effort, stated, the "proposal will discourage consumption of high-calorie beverages while simultaneously making lower-calorie beverages more affordable, which will help lead to major gains in public health ."

Cigarettes and Alcohol Taxes: So far this year, South Carolina, Hawaii New Mexico, Utah, and Washington state raised cigarette taxes. In 2009, sixteen states enacted cigarette tax increases, while six others raised alcohol taxes.

"Amazon Tax": States lose billions every year due to the failure to collect sales taxes that are legally due on purchases made over the Internet. This hurts not only state budgets but local retailers and local job creation, as purchases shift from main street to out-of-state retailers.

In 2008, New York became the first state to require online retailers to collect sales tax on purchases to customers in the state. The state changed its tax code to mandate that an out-of-state retailer with more than $10,000 a year in sales generated through sales affiliates in the state has nexus and must collect sales and local taxes. After the bill's passage, Amazon.com immediately sued, but lost the case. The state expects to generate $47 million from the "Amazon tax."

Rhode Island and North Carolina followed New York's lead and passed the Amazon tax last year. This year, New Mexico Rep. Eleanor Chavez sponsored HB 50 to extend the state's gross receipts tax to online sales. In February, Colorado enacted HB1193 to apply the sales tax on out-of-state retailers. Showing a petty vindictiveness, Amazon canceled all business relationships with affiliates in the state in retaliation, even though there is "no connection between the affiliate program and the new law."

Resources:
Center on Budget and Policy Priorities - The Zero-Sum Game: States Cannot Stimulate Their Economies by Cutting Taxes
Center on Budget and Policy Priorities - Expanding Sales Taxation of Services: Options and Issues
Stateline.org - States Plug Budget Holes, For Now

Challenging Regressive Budget Actions

Unfortunately, some states illustrate the extremely regressive proposals and budget recklessness that come into play when states fail to raise the revenue needed.

With its requirements of a two-thirds vote threshold to pass new revenue, California has remained hamstrung in closing its massive budget crisis. In response to the downturn, Gov. Arnold Schwarzenegger proposed discontinuing the state's entire welfare program, most subsidized child care, a 60 percent cut to mental health services, $750 million cut to in-home services, reducing K-12 education funding by $2.8 billion, and slashing services for the elderly and disabled. Yet, he refuses to eliminate corporate tax breaks that amount to a loss of $2.1 billion in revenue annually.

Using Strategic Revenue Increases to Target Right-Wing Governors: In New Jersey, newly-elected Gov. Chris Christie unveiled his $29.3 billion FY2011 budget proposal--an extremely regressive plan that, rather than renewing an income tax surcharge on high-end earners, cuts taxes for the wealthy while imposing severe reductions to municipal and county aid, discontinuing property tax rebates, completely eliminating funding for grants to support clinical family planning services, cutting aid to school districts, closing psychiatric hospitals, proposing a constitutional amendment to lower the property tax cap to 2.5 percent that may be placed on the November ballot, and reducing the state workforce by over 1,300 workers.

The Legislature responded to the Governor by restoring the state's millionaire's tax and property tax rebate program, forcing the governor to veto them. As state Sen. Stephen Sweeney described the Governor's position this Spring, "The wealthy people in New Jersey got a tax cut. The middle class and the poor are going to get a tax increase," since property taxes will inevitably rise with local aid cut and property tax rebates are eliminated. In response to the veto and the proposed budget cuts, 35,000 New Jerseyans flooded downtown Trenton to denounce the Governor, the largest rally in the state capitol's history. Along with an approval rating for the Governor that has dropped to 33 percent, this backlash shows that voters don't buy the argument that protecting the wealthy justifies slashing funding for working families.

In Minnesota, the Legislature agreed to 85 percent of the budget cuts proposed by the Gov. Tim Pawlenty, but also enacted a 1.3 percent increase in the income tax rate on joint taxable income in excess of $200,000. Yet the Governor still chose to veto the bill, forcing a budget deal that merely delays $1.9 billion in payments to local schools--a solution that will just push the crisis forward into next year. However, many of the candidates hoping to succeed Pawlenty have made the tax on high-income individuals a fixture of their campaign, emphasizing the way progressives can capitalize on popular support for taxing the wealthy.

Hypocrisy of Right as they Increase Taxes on Working Poor: In Georgia, the Legislature approved a bill that eliminates the refundability of the state’s low-income tax credit, which provides much needed tax relief and wage support for workers who make less than $20,000 per year, even as legislators enacted a long-term tax cut for the state's wealthiest taxpayers. If the Governor signs the bill, it would impact 1 million low-income working and elderly Georgians.

Similarly, Virginia this year enacted a cut to the state's Earned Income Tax Credit (EITC) that will cost 114,000 low-income families a total of $6 million. have moved forward with very harmful cuts to credit programs that assist low-income families. Gov. Christie in New Jersey similarly has proposed a reduction in the state's EITC. And Gov. Pawlenty cut funding for a renters tax credit in Minnesota, that will cost 300,000 low- and moderate-income residents $51 million, even as he fought increased taxes on the wealthy.

What stands out is that almost all states with EITCs have maintained full funding for tax relief for working families, but some rightwing governors have pushed for higher income taxes on low-income families just to protect wealthy tax payers from sharing in the burden of solving the budget crisis.

Center on Budget and Policy Priorities - Some States Scaling Back Tax Credits for Low-Income Families
Georgia Budget and Policy Institute- Revenue Increases Help Balance the Budget in the Short Term, but Tax Cuts Will Lead to Deficits in the Long Term

Making the Case for Progressive Tax Policy

Progressives have emphasized some key messaging and research in making the case for new revenues.

Spending on Programs that Assist Low and Middle Income Families is Effective Recovery Policy:

During an economic downturn, progressive revenue generation is far preferable to deep cuts, as it allows states to provide funding for essential programs, pump money into the economy, and protect working families. A budget that relies too heavily on cuts will not only force layoffs of state employees, but will also diminish crucial services and reduce spending in the private sector.

By assisting working families, who will more readily spend their funds on basic needs, the government is boosting short-run demand and fostering market activity. A report by the Economic Opportunity Institute details:

Every dollar of state spending generates $1.41 of economic activity...Cutting state spending means fewer purchases from suppliers, reduced contracts with service providers, less money from public and private employee paychecks circulating through local businesses – and of course, fewer public services."

On the other hand, cuts are extremely damaging to the economy. Further reductions will diminish state workforces, decrease spending on crucial programs, curb economic growth, and exacerbate the effects of the downturn. The Economic Policy Institute details the danger of state budget cuts as they impact employment, economic activity, and investment in both the public and private sector.

Taxes Do Not Undermine Economic Growth:

As PSN has highlighted in previous Dispatches, research consistently shows that there is no link between tax increases and job loss. Moreover, states with higher personal income tax rates experienced significant job growth in the past decade, have more innovative new economy industries as a result of crucial investments in long-term growth industries, and sustain higher income growth.

The Overall Tax Burden Is Low:

Despite intense rhetoric from the right, the Bureau of Economic Analysis reports that "[f]ederal, state and local taxes—including income, property, sales and other taxes—consumed 9.2% of all personal income in 2009, the lowest rate since 1950." In fact, the average rate has decreased 26 percent since the national recession began in late 2007. The Center on Budget and Policy Priorities (CBPP) reported similar results in a recent study, finding that as a result of tax cuts included in the American Recovery and Reinvestment Act (ARRA) and other tax changes at the federal level, middle class families are paying the lowest proportion of federal taxes as a percent of income in decades.

But the Rich Pay Far Less of Their Income in State Taxes than Working and Middle Class Families:

The richest taxpayers have not been contributing their fair share for years. When you factor in sales and excise, property, and income taxes, states tax working families far more heavily than richer individuals, contrary to common notions about taxation. The Institute for Taxation and Economic Policy (ITEP) finds that on average, the lowest 20 percent of earners pay about 11 percent of their income in state and local taxes while the top 1 percent pay a little over 6 percent of their income to state and local governments.

Taxes on the Wealthy Are the Most Effective Response to the Recession:

Given that the wealthy are already paying a lower percentage of their income in state taxes, it makes both economic and moral sense to raise revenues by creating a more equitable burden of taxation between wealthier and lower-income state residents. Raising income taxes on high-income individuals is the most direct way to accomplish this.

Progressive Taxes Don't Cause Out-Migration of Wealthy Residents:

And to respond to a favorite talking point of the right-wing, states that have increased the top rate in recent years have not experienced any significant out-migration of wealthy residents. For example, after the New York temporarily raised income taxes on the wealthy from 2003 to 2005, the number of high income tax returns grew 30 percent, from 250,000 to 325,000 in the state. Similar trends occurred in California and New Jersey.

Resources:
Progressive States Network - Revenue Options in 2010: Making the Case and Debunking the Myths
Center on Budget and Policy Priorities - Raising State Income Taxes on High-Income Taxpayers
Center on Budget and Policy Priorities - Federal Income Taxes on Middle-Income Families at Historically Low Levels
Center for Working Families and Fiscal Policy Institute - Back on Track: Why Progressive Tax Reform is an Essential Part of New York's Budget Solution
California Budget Project - Budget Cuts or Tax Increases: Which are Preferable During an Economic Downturn?
Center for American Progress report, State of American Political Ideology, 2009: A National Study of Values and Beliefs
Institute on Taxation & Economic Policy - Who Pays?
Princeton University Policy Research Institute for the Region - Trends in New Jersey Migration: Housing Employment and Taxation

The Public Supports Progressive Investments-- But Needs to Be Sold on Government Effectiveness

Polling conducted by the Center for American Progress (CAP) indicates that 79 percent of the public believes "[g]overnment investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth." Other significant findings of the study include:

69 percent believe "[g]overnment has a responsibility to provide financial support for the poor, the sick, and the elderly" - with 33 percent strongly agreeing.
60 percent of the public agree that "[r]ich people like to believe they have made it on their own, but in reality society has contributed greatly to their wealth" - with 30 percent strongly agreeing.
62 percent believe "[t]he gap between rich and poor should be reduced, even if it means higher taxes for the wealthy."
Over 60 percent believe government should "take care of people who can't care for themselves" and "guarantee food and shelter for all."

During an economic downturn when so many working families are struggling, voters are likely to support policies to raise revenue, specifically increases on the wealthiest individuals and corporations that have a much smaller tax burden than lower-income families and small businesses. They are also likely to support measures that strengthen public structures, invest in programs that benefit society collectively, and provide safeguards to those who have been hurt the most by the recession.

Need to Message the Effectiveness of Government Action: As we highlighted last fall, while the public supports government action, they are often skeptical that it will deliver on the promises of elected officials, with up to 61 percent of the public believing that "government spending is almost always wasteful and inefficient" and even more, 65 percent, fearing that government policies will "serve the interests of corporations and the wealthy" rather than regular voters.

To counter these fears, a recent policy brief, Promoting Broad Prosperity, by the Topos Partnership and Demos details some key messaging on how to discuss government:

Don't talk about government in the abstract.
Emphasize that “public structures” created and maintained by government are foundational to prosperity and economic stability, as well as the strength of the middle class.
True prosperity rests on collective success, not just individual opportunity or success.
Public structures (like the FDIC, community colleges and Social Security) are built collectively and yield collective benefits.
Explain how government policies direct the flow of money to different parts of our society and help people focus on how policies lead to particular social and economic outcomes.

Since the public retains skepticism about government in the abstract, emphasize talking about new revenues to support specific public institutions like schools or other concrete programs that people support and utilize daily.

The strongest point of optimism is that younger voters, so-called Millennials, are more committed to progressive goals and notably less cynical of the effectiveness of government as a tool for achieving those ends.

Resources:
Center for American Progress - State of American Political Ideology, 2009: A National Study of Values and Beliefs
Progressive States Network - Progressive Values Dominant -- But Need to Rebuild Trust in Effectiveness of Government Action
Progressive States Network - Taxing High-Income Residents: Better than Budget Cuts, Better for Economic Growth
Topos Partnership and Demos - Promoting Broad Prosperity

The Need for Continued Federal Support

Even as states raise revenue at home, states will continue to face shortfalls in the coming year and millions of Americans remain out of work. Mark Zandi, Chief Economist at Moody's Economy.com, reports that the revenue drop last year was "the largest decline on record going back to just after World War II." Furthermore, as Stateline.org points out, budget gaps in recent years greatly surpass those during the 2001 recession.

The crisis requires swift and bold action by federal lawmakers on job creation. Without further federal assistance, states will slash hundreds of thousands of jobs and reduce health care, education and public safety services even further than they have already.

Congress will be considering the Promoting American Jobs and Closing Tax Loopholes Act of 2010, H.R. 4213, a jobs bill that will help boost economic recovery and assist people out of work. This will result specifically in $26 billion in sorely needed funding for state and local governments health programs, known as federal medical assistance percentages (FMAP).

The legislation would also extend unemployment insurance (UI) and subsidized COBRA health coverage for those out of work, provide additional fiscal relief to states, continue expanded temporary assistance for needy families (TANF) and fund summer jobs for young workers. On top of that, the bill would close a corporate tax loophole that allows Wall Street hedge funds to have their earnings taxed as capital gains instead of as ordinary income.

If you are a state lawmaker, please sign onto this letter calling on the President and Congress to enact a comprehensive jobs plan, including relief to states and local governments to foster economic growth and create and maintain jobs.

Resources:
AFL-CIO - Act Now: Tell House to Pass Badly Needed Jobs Bill
Stateline.org - States Plug Budget Holes, for Now
Economic Policy Institute - Dire States--State and Local Budget Relief Needed

Conclusion

PSN has outlined progressive options for revenue generation and balanced budgets in previous issues of the Dispatch. The Tax Fairness Organizing Collaborative also provides guidelines for closing recessionary budgets, which should include raising money available to state governments, making tax increases and reform one in the same, and encouraging augmented federal-state revenue sharing.

Resources:
Center on Budget and Policy Priorities - Tax Measures Help Balance State Budgets
Progressive States Network - Revenue Options in 2010: Making the Case and Debunking the Myths
Tax Fairness Organizing Collaborative - Solutions that Work for Main Street: Progressive Guidelines for Closing Recessionary State Budget Gaps

Budget Transparency Advances Across Country

Altaf Rahamatulla — Thu, 06 May 2010 12:37:29 -0400

Last week, the Massachusetts House unanimously passed the Revenues and Expenditures Transparency Act, H 2972, to create a searchable, online database that details state spending and revenue sources. Lawmakers also approved an amendment to create greater taxpayer accountability by providing increased transparency around some business tax credits. As House Chairman of the Joint Committee on Revenue Rep. Jay Kauffman explains, "[p]ublic access to the way we raise and spend money is essential, enabling us to make more-informed decisions for the tax-paying constituents who elect us to serve on their behalf."

This progressive victory comes on the heels of the release of U.S. PIRG's, Following the Money: How the 50 States Rate in Providing Online Access to Governm ent Spending Data, which analyzes and ranks each state on their development of comprehensive, one-stop, one-click budget accountability and accessibility. Massachusetts lags behind most of the country and received an "F" for lacking comprehensive online spending disclosure. The report also discusses some of the major benefits of corporate transparency, which can promote sound fiscal practices, find spending inefficiencies, reduce corruption, and encourage a more focused budget process.

As part of our 2010 Shared Multi-State Agenda, the Progressive States Network has worked with state lawmakers nationwide to promote Corporate Transparency in State Budgets policies. As states confront massive budget shortfalls, declining revenues, and deal with the aftermath of financial industry abuses and the economic downturn, state lawmakers have advanced some notable transparency reforms:

Colorado: The House last week approved Rep. Sal Pace's HB1350, which requires any entity that receives public funds for the purpose of economic development to file an annual report to the Colorado economic development commission on jobs created, wages paid, and other important categories. It will now be considered by the state Senate.
Iowa: This session, the Iowa Legislature approved HF 2527/SF 2380, which enacts modest tax credit reform, including a process to regularly examine credits, temporarily suspending the film tax credit, and reducing spending on other credits.
Maine: The Maine Legislature approved Rep. Emily Caine's LD 1694 that will convene a working group to identify and examine each tax expenditure, design a method to assess economic impact, recommend a regular tax expenditure report and review schedule, and submit these findings to the Legislature next year.
New York: Recently, Sen. Liz Krueger introduced an ambitious package of reforms to New York's budget process, including S 7347, which requires use of cost benefit analysis as part of the annual tax expenditure report and establishes a sunset schedule for all tax expenditures.

Resources:
MASSPIRG- House Adopts State Spending Website
Progressive States Network - Corporate Transparency in State Budgets
Progressive States Network - Update: Mapping the Progress of Shared Multi-State Agenda
U.S. PIRG - Following the Money: How the 50 States Rate in Providing Online Access to Governm ent Spending Data

Recovery Act Boosting Economic Performance and Providing Middle Class Tax Relief

Altaf Rahamatulla — Thu, 29 Apr 2010 12:15:36 -0400

The Council of Economic Advisers (CEA) recently released its third quarterly report on the impact of the American Recovery and Reinvestment Act (ARRA). The report generally confirms what economists across the board have concluded: the Recovery Act has prevented a full economic collapse; generated millions of jobs; boosted national economic performance; and provided sorely needed state fiscal relief.

The CEA estimates ARRA has created or saved between 2.2 and 2.8 million jobs, nearly half of which have been enabled by the tax relief and income support provisions of the law. The report also finds that as a result of the Recovery Act:

government investment in high-growth areas, including infrastructure and clean energy, increased $16 billion in the first quarter of 2010;
real GDP began rising in the third quarter of 2009 and payroll employment started to increase in the first quarter of 2010;
first quarter GDP in 2010 is between 2.5 an 2.9 percent higher than what it would have been; and
approximately $110 billion in tax relief and $90 billion in other income support, like unemployment benefits and food assistance, directly benefited middle and lower income families

The last point is critical. Not only has ARRA positively impacted the economy, it has offered real relief to working families in a time of extreme economic hardship. As CEA Chair Christina Romer, relates, “[i]n addition to shoring up the overall economy... the Recovery Act has made a real difference in the lives of families. The broad set of tax cuts and income supports enacted last year have clearly boosted consumption and employment growth in a way that has been absolutely essential.” The table below illustrates that ARRA's tax relief provisions are predominantly directed towards the middle and working class and have helped reduce these families' tax burdens to the lowest levels they have been in decades.

Resources:
Center on Budget and Policy Priorities - Federal Income Taxes on Middle-Income Families at Historically Low Levels
Council of Economic Advisers - The Economic Impact of the American Recovery and Reinvestment Act of 2009: Third Quarterly Report
Progressive States Network - 2.4 Million Jobs Supported by the Recovery Act - and a Depression Averted
Progressive States Network - Take Action: Additional Federal Job Creation and State Fiscal Relief Needed
The White House - New CEA Report Finds Recovery Act Already Responsible for about 2.5 Million Jobs