Balancing The Budget
Between California and Illinois, you’re looking at about $45-48 billion dollars to balance budgets, between tax hikes and program cuts. The anti-stimulative effect of that almost totally wipes out the $55-60 billion in stimulative measures that aren’t just extensions of current law in the tax cut deal.
That’s not a commentary on how the tax cut deal could have ended state budget crises (although an innovative policy solution could have at least put that in motion and at least begun to set up some counter-cyclical fund so states don’t have to contract during recessions). It’s more a commentary on how economic forecasters assumed major growth from this tax cut deal, even though it’s almost entirely composed of poor stimulus and would be overwhelmed by budget cuts at the state and probably federal level. Austan Goolsbee likes to talk up the stimulative power of that tax cut deal, but he’s looking at it in a vacuum. Fiscal policy in 2011 and 2012 is still very likely to be contractionary, and nobody in Washington is arguing for that to change. Vain hopes of “stimulus” seem very odd, in this context.
Read the whole thing to get an idea of what happening in California and Illinois. It's pretty desperate.
I find it fairly hard to believe that the smart people like Goosbee didn't realize that their "stimulus" was going to be balanced out by catastrophic cuts in state spending. The best face you can put on it is that they just don't have the political will to fight it and are simply clapping louder in hopes that everything will turn out ok in the end. Nothing else makes sense