The current economic crisis has led to high levels of unemployment, reducing income and sales tax revenues to the states. Tax rates for the wealthy have also dropped during recent decades. State budgets are therefore hemorrhaging cash due to a drop in revenue. Making the problem even worse, the typical state response to the drop in revenue has been spending cuts without tax increases which leads to another decrease in wages in the states. The Real News has interviewed James Heintz of the Policital Economy Research Institute at the University of Massachusetts to investigate the problems in state budgets as well as to explore possible options available to improve both the budgetary situation and the economy.
It turns out that not all solutions have been tried. Conservatives have continually made the case that ‘we must cut spending’ while completely ignoring the revenue side of the budget. This situation is currently being played out in Wisconsin, where tax rates on billionaires have been cut repeatedly during the past 40 years though it is the workers who are now expected to make up the difference in balancing the budget, both in terms of fewer government services and lower wages.
Recall that one of the problems in the current state budget crisis is the loss of wages in the first place. Forcing state employee unions to accept harsher terms only puts downward pressure on wages across the economy. The state should rather find ways to provide positive support for wages and a simple way to do that is through tax increases on the wealthy. Simply increasing taxes to 2000 levels will restore most state budgets to solvency and it will also help to prevent continued layoffs and unemployment in the states while also providing support for investment in badly needed pubic infrastructure.