Obamanomics: State Debt Shows A Looming Crisis

Obviously, the New York Times isn’t blaming this on Obama and the Democrats, yet, since Democrats have held the power of the purse and legislation throughout this entire economic downturn, and the Presidency for the past two years, not too mention a good chunk of the state legislatures, it’s their policies that create the problems that not only won’t go away, but are getting worse: Mounting State Debts Stoke Fears Of A Looming Crisis

The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week.

How could that be? The Generation Theft Act gave them tons of money to run their schools and services and stuff…..huh? That money is all gone? All those appropriations have ended? The states are now mostly broke, since people aren’t spending like they used to, tons of people aren’t working, so they do not have any income to file on their tax forms, they are keeping big ticket items longer, so less property tax? Man, who could have predicted that the Stimulus would leave states in that condition?

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt – several trillion dollars’ worth, with much of it off the books and largely hidden from view – that it could overwhelm them in the next few years.

Here in North Carolina, the media has been beating the drum over what is going to happen with the schools, not too mention other government services. The schools are looking at lots of layoffs and increased school sizes, due to much lower revenues. Ye Olde Stimulus gave them operating income for two years, yet, Mom and Dad have cut them off, and they have to pay for themselves. And unlike Big Daddy government, states cannot run a deficit. At least their not supposed to.

Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.

So, massive federal spending/giveaways did not help the state finances? Painting bridges and repaving roads was a failure? Sounds similar to what happened with the private sector vis a vis the Stimulus and other Democrat recovery efforts.

But the finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

Analysts fear that at some point – no one knows when – investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones, much as the turmoil in Europe has spread from country to country.

This comes barely through one quarter of the article, and the doom and gloom, which is, in fact, real, continues for the rest of the story. There are no bright spots. And this all comes from the Liberal Paper Of Record, which handles all the information as straight news, with nary a hint of blamestorming nor looking for a culprit, unlike what they usually do, which is no surprise, because we can truly lay the blame primarily at the feet of Democrats, who really do not know how economies work. Personally, I do not like to assign nefarious motives to what their legislation and spending and bailouts do. They really aren’t that smart, and probably truly think their policies should work, and are surprised that they aren’t working.

Take the tax cuts of 2001/2003, which they characterized as tax cuts for the rich for 8 years, but now want to keep the portions that are tax cuts for the middle class. They fail to understand that it is people with money that keep the economy moving, and when they spend in all sorts of different ways, the economy is stimulated, money flows, jobs are created, people have more disposable income, more people are made richer, and the states have money in their coffers.

Let me make it simple for Liberals, though, they will surely say “that’s not the way it works! If you take from the rich and give free money to societal parasites, they will magically create jobs and stuff.” Let’s take a guy, we’ll call him….John Kerry. His effective tax rate is low. So, instead of sheltering his money, he decides to purchase, well, say, a yacht. He has to pay taxes on it to the state it is registered in, and perhaps his own state. That’s a lot of moo-la to the state coffers. And some company and the people who work for it made a boat load (sic) of money. John now has to berth it and maintain it, so, a dock owner and other folks are going to necessary, and paid, for doing just that. So now dock owner, let’s call him Barry O, has more money, so, instead of taking a staycation, he and the family are going to Disney World. This means that a hotel is going to make some cash, as will the people who serve them. The concessions stands people, the souvenir people, and all other manner of people will make money. And they need new clothes, so the store they buy them from, and, perhaps a salesperson, will make more money. At each point, sales tax is being assessed, which goes to the State coffers, making them more solvent.

Then there is this lady, let’s call her Nancy. She decides to take that extra cash that would have otherwise gone to the Federal government had her tax rate gone up, and buys a new Jaguar. Well, two, because one is always in the shop. That salesperson makes a great commission. So, the salesperson, we’ll call her Diane F., can now afford to ditch her old car, and buys a used Infiniti. Salesperson makes money. That salesperson, we’ll call her Michelle O, now has the money to purchase that HD 3-D TV and Blu Ray player she has been dying for. So, now that salesperson, Harry R. has cash, and, decides to finally start that technology repair and installation business she has been longing for for years. Nancy is a friend of Harry’s parents, and drops some start up capital his way, too, with an expectation on return. Over time, as people buy more TVs and computers, his business booms, and he hires people to help him out. Notice, at each stage, tax money is paid to the state. People have more income, so, they pay income tax to the states, not to mention property tax on the vehicles. And even with lower federal tax rates, they end up paying more to the federal government, because the “rich” are making more money, and not shelter as much, they pay more in taxes on their returns.

Finally, to pre-rebut a liberal talking point, yes, this has happened with higher tax rates. That said, once a rate is lowered, people do not want it to go up, and, if they are concerned that it will, they’ll shelter that money. They won’t spend as much. Investment capital dries up. Less money flows through the economy. Which means less money for the state governments, leaving them on the brink of becoming Greece.

Crossed at Pirate’s Cove. Follow me on Twitter @WilliamTeach. sit back and Relax. we’ll dRive!

Share this!

Enjoy reading? Share it with your friends!