Post by SirSaxa on Feb 2, 2011 11:49:59 GMT -5
There has been lots of talk of the effects of the Financial Crisis on States. For example, CA Gov. Jerry Brown is asking for $12B in spending cuts and the temporary continuation of $12B in additional tax revenues to balance the State's budget.
But there is some good news too. Not enough, but movement in the right direction. Before we get to that, the economic catastrophe we have just experienced, and from which we are still digging out, caused govt. (Fed & State) revenues to decline:
- 8 million lost jobs and their related income, SS and other taxes
- Lower economic activity means lower sales tax revs too
- Lower corporate profits and subsequent lower tax revenues
- etc.
AND... also caused Govt. expenses to increase
- Unemployment payments
- SS payments for early retirees
- Food stamps
- Etc.
This "double whammy" makes Fed and State budgets look even worse in a time of economic decline -- but doesn't accurately reflect the longer term outlook.
However, we are starting to come out of that.
As noted above, there is still a LOT of work to be done.
The same principle applies to the Federal Govt. Yes, we need to
-- make a plan for cutting Fed. Expenditures -- a couple of years down the road when the economy will be strong enough to withstand it
-- AND to raise taxes
But if we ONLY look at the situation today, without taking into account the longer term trends that got us into this mess, or the future trends that will make the situation look a LOT less dire, we won't be making good choices.
But there is some good news too. Not enough, but movement in the right direction. Before we get to that, the economic catastrophe we have just experienced, and from which we are still digging out, caused govt. (Fed & State) revenues to decline:
- 8 million lost jobs and their related income, SS and other taxes
- Lower economic activity means lower sales tax revs too
- Lower corporate profits and subsequent lower tax revenues
- etc.
AND... also caused Govt. expenses to increase
- Unemployment payments
- SS payments for early retirees
- Food stamps
- Etc.
This "double whammy" makes Fed and State budgets look even worse in a time of economic decline -- but doesn't accurately reflect the longer term outlook.
However, we are starting to come out of that.
Excerpts
State Tax revenue increased 6.9 percent in the October-December quarter... It's also the fourth straight increase after revenue fell for five quarters in a row during and after the recession, the report said. Revenue plummeted 16.8 percent in the April-June quarter of 2009 and 11.5 percent in the July-September quarter of that year.
Income taxes, which provide about 36 percent of state revenue, on average, rose 10.7 percent in the final three months of 2010. Sales taxes, which account for 31 percent of revenue, rose 6 percent in the same period, the report said.
Still, revenues remain below pre-recession levels, while spending has risen to meet increasing demands for social services. That means states still face large budget gaps they will have to close through more spending cuts and/or tax hikes.
CNBC - Most States Seeing Further Gains in Tax Revenue
As noted above, there is still a LOT of work to be done.
The same principle applies to the Federal Govt. Yes, we need to
-- make a plan for cutting Fed. Expenditures -- a couple of years down the road when the economy will be strong enough to withstand it
-- AND to raise taxes
But if we ONLY look at the situation today, without taking into account the longer term trends that got us into this mess, or the future trends that will make the situation look a LOT less dire, we won't be making good choices.
