FEDERALIZE

Drip, Drip, Drip (MATT BAI, June 8, 2003, NY Times Magazine)

Amid all the political rhetoric about saving taxpayers money, we seem to have forgotten how governments actually function. President Bush says federal tax cuts now totaling more than $1.5 trillion will put money back in the bank accounts of average Americans, but to understand what governors are going through is to understand why that isn't really true. For a lot of Americans, the president's tax cut won't end up being a tax cut at all; it's really just a tax shift.

Here's how it works. The tax cut will choke off revenue to the federal government, which is precisely what conservatives want it to do. Their thinking is that the less money Washington has, the less it will waste. This means Congress can't increase financing for the mandates it's been heaping onto the states for 40 years. For instance, Congress shares with states the cost of Medicaid, the health care program for the poor, which gobbles up huge chunks of state budgets. Since Washington hasn't seen fit to provide elderly patients with a prescription drug plan, that, too, falls to the states. So does the overwhelming share of special education for disabled children, another federal program. And let's not forget more recent mandates -- Bush's ''No Child Left Behind'' law and increased spending on homeland security -- that the feds have passed on to governors with minimal assistance.

Bush's tax cut does include $20 billion in aid to the states, a provision that passed only because Senate moderates demanded it. Half of that money will be divided among the states over the next two years to help close budget shortfalls. That's helpful, but it's hardly salvation. According to the nonpartisan Center on Budget and Policy Priorities, states are facing about $100 billion in deficits right now.

Unlike the president, who can run up deficits at will, governors are legally bound to pass balanced budgets. So in order to finance programs like special education and Medicaid while their budgets implode, governors must pull money from universities, parks and highways. ''The budget meetings are extremely depressing,'' Michigan's new Democratic governor, Jennifer Granholm, told me during a recent visit to Washington. ''We've got to contemplate cutting burial services for indigents, or cutting after-school programs for at-risk kids, or cutting programs even for talented and gifted children. These are Hobbesian choices.''

Rather than raise taxes, a lot of governors, like Doyle and Granholm, adhere to what might be called ''Florio's Law.'' During the last recession, some governors, most visibly New Jersey's Jim Florio, tried to raise taxes and were soundly bounced from office. The lesson that a lot of politicians, especially Democrats, took away from that period is that you can weather almost anything but a major tax increase.

Instead, desperate governors are slashing the aid that flows from each state to the cities and towns where people actually live. And this is the hidden effect of the Bush tax agenda -- beyond the expanding deficits and favoritism toward the wealthy -- that a lot of taxpayers don't yet seem to grasp. If Bush and Congress cut taxes, and your governor doesn't raise them, then the buck ultimately stops with your mayor, who has to find ways to pay the police and firefighters, paint schools and pave roads. That'll mean higher property taxes or fees on services like garbage collection, or maybe the town will decide it's time to reassess the value of your house. Either way, you're likely to be paying someone else the money you no longer send to Washington.

There is a legitimate conservative theory at work here -- if anyone in the administration had the courage to own up to it. Conservatives believe that it's simply fairer to have people taxed by their local governments than by Washington. This way, the people who pay for the services are the ones using them. As an intellectual point, this makes a lot of sense: if you live in Illinois, you may end up paying more money for your local police force, but that's better than giving it to Congress so they can use it to pay for cops in Florida.

Two points stand out here: (1) Balanced budget amendments work and the Federal Government should be put under one; (2) federally mandated
spending is a disaster and should be abolished. Posted by Orrin Judd at June 7, 2003 4:46 PM