Turn – Even if they win the state economies are bad now, the cp makes things worse and the economic downturn deeper – Federal government action ONLY way to solve
Iris J. Lav , Fmr. Deputy Director and Elizabeth McNichol, Senior Fellow specializing in state fiscal issues 2009 (Jun 29, “State Budget Troubles Worsen”
Center on Budget and Policy Priorities, http://www.cbpp.org/cms/?fa=view&id=711)
Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend – though to the extent these increases are on upper-income residents that effect is minimized because much of the money comes from savings and so does not diminish economic activity.
The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.
LINK EXTENSIONS
States are strapped – difficult to afford social services in the status quo
Tami Luhby (CNNMoney.com senior writer) July 1, 2009: Tax hikes and budget woes: States crunched. http://money.cnn.com/2009/07/01/news/economy/state_budgets/?postversion=2009070111
It's not a happy new year for the states.
States are carrying their financial woes into the new fiscal year, which for most started on Wednesday. Some had yet to pass their fiscal 2010 budgets. For others, tax hikes and draconian spending cuts went into effect.
Governors and legislators spent fiscal 2009 wrestling to balance budgets as tax revenues plummeted amid the weakening economy. Many were forced to slash funding for social services, education and public safety, as well as raise sales levies, income taxes and other fees.
Fiscal 2010 is not looking much better, experts said. New budget gaps opened up even before the year began.
"The economy is not out of the woods so states are not out of the woods," said Bert Waisanen, fiscal analyst with the National Conference of State Legislatures.
A half-dozen states entered the new year without budgets in place.
"They are dealing with some very difficult fiscal decisions," Waisanen said.
State budgets tanked – rising costs of social services and lower tax revenues are the cause – they makes it worse
Zacks Investment Research June 18, 2009: States of Distress. http://www.istockanalyst.com/article/viewarticle/articleid/3274741
Unlike the Federal Government, the 50 states are required by their constitutions to run balanced budgets. This presents a serious problem when the economy turns south, since spending on things like unemployment insurance and some social services goes up, and tax revenues go down.
This post is on the latter part of the problem. The Nelson Rockefeller Institute of Government just came out with a report on just how much state tax collections have fallen in the first four months of the year (including the very important month of April). The charts below are from that study by way of http://www.calculatedriskblog.com/.
The first one shows that the vast majority of states with personal income taxes have seen sharp declines versus last year in collections. Only three (small) states have seen an increase in personal tax collections vs. a year ago. There were no data for four states and 33 states reported falling revenues. Ten states, including Texas and Florida, do not have state income taxes.
Eight states have seen drops of at least 30%. There is a very high correlation between the states with the biggest fall in tax revenues and those with the highest unemployment rates.
CALIFORNIA SPENDING DA – SHELL
A. Uniqueness and Link – California’s economy is fragile, but it is still key to the US economy – California CAN NOT afford anymore spending like the plan.
Williams 6/29/09 (Juliet, AP Writer, California economy could prolong US recession)
(AP) — California faces a $24 billion budget shortfall, an eye-popping amount that dwarfs many states' entire annual spending plans.
Beyond California's borders, why should anyone care that the home of Google and the Walt Disney Co. might stop paying its bills this week?
Virtually all states are suffering in the recession, some worse than California. But none has the economic horsepower of the world's eighth-largest economy, home to one in eight Americans.
California accounts for 12 percent of the nation's gross domestic product and the largest share of retail sales of any state. It also sends far more in tax revenue to the federal government than it receives — giving a dollar for every 80 cents it gets back — which means Californians are keeping social programs afloat across the country.
While the deficit only affects the state, California's deepening economic malaise could make it harder for the entire nation's economy to recover.
When the state stumbles, its sheer size — 38.3 million people — creates fallout for businesses from Texas to Michigan.
"California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly," said retail consultant Burt P. Flickinger, managing director of Strategic Resource Group. He warned of more bankruptcies of national retail chains and brand suppliers.
B. If California’s economy collapses then the United State’s Economy will collapse
Ladaga 7/1/09 (Lili, Editior, http://news.yahoo.com/s/ynews/ynews_ts418)
Armageddon. Apocalypse. Disaster: These are the words being used to describe California's staggering $24 billion budget deficit. Last night, lawmakers failed to pass a budget by the midnight deadline and the state may now have to issue billions in IOUs to cover the bills.
Almost every state is suffering from the effects of the recession, but not every state accounts for 12 percent of the national gross domestic product. According to AP, if California goes down, so goes the nation: California's annual $1.7 trillion economy is the world's eighth-largest economy and provides a significant chunk of tax revenue for the government; California alone funds many social programs for the entire nation.
Like the Big Three automakers, California may be "too big to fail." If the state implodes, the ripple effect could slow the entire nation's recovery from the recession. Burt P. Flickinger, a retail consultant, tells AP:
"California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly."
C. Economic Decline leads to war
(Insert Mead)
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