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Slaughterhouse '10: The Gutting of State and Local Government

Posted on Friday, March 26th, 2010 at 3:58 pm by Les Leopold

This post originally appeared on The Huffington Post.

The Jeffersonian anti-federalists feared that a strong national government would lead our fledgling nation back towards monarchy. Instead they wanted government closer to the people where it would better serve their interests rather than interests of the moneyed merchants and traders.

That not good enough for Tea Party and other conservative activists today: They're against all government, at all levels. They don't want government to provide much of anything except maybe a vast military industrial complex. But public schools, environmental protection, social services for low and moderate income people? Fugetaboutit!

The Wall Street-led crash has created the perfect climate for this crusade to eviscerate the public sector, especially at the state and local level. It's ugly and getting uglier.

With 29 million American unemployed or forced into part-time jobs, tax receipts have plummeted more steeply than any time since the Great Depression. State and local governments are slashing their services–at the very moment when people most desperately need them. This is the very definition of a fiscal crisis.

In a saner world it would be obvious to everyone that state and local governments are not to blame for this mess. They didn't cause the Great Recession–Wall Street did. And if you can't see that, then you're enveloped in an ideological cloud so thick that no facts can penetrate. Even Alan Greenspan, the life-long anti-government libertarian, has confessed that under his watch as Fed chair, Wall Street ran wild, touching off a global economic calamity. So let's not argue about this any more.

State and local governments are far from perfect, of course. More than a few got suckered into Wall Street's financial engineering schemes. Some foolishly invested their pension funds in toxic assets. Some allowed their debt to pile up, even while balancing their budgets. Many states, if not most, have been letting their super-wealthy residents pay too little at tax time. Even before the Great Recession, middle and lower income residents shouldered a heavier tax burden than the super-rich (who, of course, deduct their state and local taxes from their federal taxes — assuming they pay any taxes at all).

These problems can be addressed without destroying state and local governments. But now that a genuine budgetary crisis has hit 42 out of 50 states, the knives are out. It's not just about fixing problems. It's about revenge.

In New Jersey, where I live, we're watching Governor Chris Christie try to devour the teachers union as if it were a slice of his favorite cheesecake. He's not worried that his plan to cut the state's education budget by a whopping $820 million might harm our children. No, he's loving the crisis because now he can stick it to teachers all over the state. You choose, he tells them: Do you want wage and benefit cuts, or layoffs? And sorry, parents: If your kid's after-school tutoring program closes, you know who to blame. It's those greedy teachers. (In our town the teachers union made concessions and 85 teachers still will lose their jobs.)

We'll feel the awful effects of state and local budget cuts all over the country, in virtually every area of public life. Parks will be closed and privatized. Libraries will cut hours or close altogether. And we'll all be trained like Pavlov's dogs to detest government as we wait on longer and longer lines for basic services and have to tangle with stressed out government employees whose jobs have become a living hell. (When you have a lot of time to kill, try getting your New Jersey license renewed.)

When you strip away all the loose talk about getting our fiscal house in order, Governor Christie and many other conservatives see this as a golden opportunity to crush the last bastion of trade unionism in America. Only 7.2 percent of private sector workers were in unions in 2009, according to theBureau of Labor Statistics. Pretty grim, from a union point of view. But in the public sector, 37.4 percent of workers are unionized — with the teachers leading the way.

Christie's no dummy. But you don't have to be a rocket scientist to figure out how to use this financial crisis to gut public sector workers' wages and benefits. The argument is simple: Why should private sector workers who've lost most of their benefits have to pay taxes to support decent healthcare plans and pensions for those lazy public workers? Hey, those teachers even get the whole summer off!
It's certainly true that private sector workers' benefits are vanishing before their eyes. In 1991, 88 percent of Fortune 500 workers got medical coverage if they retired before Medicare kicked in. Now it's 33 percent. In 1998, 68 percent of Fortune 500 workers had pension plans. Now only 42 percent had them. Meanwhile, public workers not only have pensions, they have good pensions: 80 percent still have "defined benefit" retirement plans. (Federal Reserve Bank of Chicago) So at a time when other workers are watching their 401(k) retirements tank (assuming they have any at all), public workers are still slated to get a fixed monthly pension check. How dare they! Better that we all should have next to nothing than have those pampered teachers get more than we do!

It's a pathetic argument, but it works.

You hate government? You hate unions? Fine. But do you hate yourself as well? As this race to the bottom accelerates, the budget-cutting mania will act as a gigantic anti-stimulus program, sucking jobs out of the public and private sectors. It's estimated that in 2010 and 2011, the states' budget shortfalls will total $375 billion. That will just about wash out the positive job impact of the federal stimulus program.

Job loss leads to reduced tax revenues, which leads to more job loss. No wonder most economists predict we'll suffer through years and years of high unemployment. (And if you think that the private sector is going to pick up the slack as workers' purchasing power goes down, please pass me whatever you're imbibing.)

If we could just get over our blinding hatred of unions and public sector workers, we might see that we do in fact have the money we need to rebuild our ramshackle infrastructure, enhance public education and create a new green economy. It's right there–in the hands of the few. Since 1979 the wealth of the top 1/100th of one percent of all earners increased by 384 percent, while the median earner gained only 12 percent in real wages! (New York Times, ) And yet the effective federal income tax rate for the 400 top taxpayers with the very highest incomes has declined by nearly half over the past two decades–even as their pre-tax incomes have grown five times larger, according to new IRS data. The 400 wealthiest Americans alone have more than $1.3 trillion (not billion) in wealth - just 400 people!
A surcharge on these super-rich individuals could help fund our collapsing public sector. Plus, as a matter of simple justice we should have our Wall Street barons pay reparations for the damage they have done and still are doing. After all, they've just walked off with $150 billion in bonuses derived directly from our bailout money.

The moment is right for the Obama administration and the Democratic Congress to make a very simple case: Wall Street crashed our economy and knocked a giant hole in every state budget. Let's tax Wall Street's gambling and bonuses to make the states whole. Under Nixon, it was called revenue sharing. Let's do it again, and avoid a grim future of service cuts and job loss.

Dream on, you say? Maybe. But each of us actually has a choice. We can either sit and watch as our state and local governments are turned into slaughterhouses, or we can work together to compel the financial elites to pay their fair share. Those of us who are ready to tackle our billionaire bailout society need to form a progressive populist alternative to the Tea Party, and fast.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

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