What the Stimulus Cuts Mean

Now that we have some numbers on the Senate compromise for the Stimulus Package I feel I can make some comments. Moderate Republican Senators Susan Collins and Olympia Snowe from Maine and Arlen Specter from Pennsylvania emerged from negotiations with twelve to fifteen moderate Democrats led by Ben Nelson of Nebraska and announced agreement had been reached to cut some $110 billion from the Stimulus Bill passed by the House. Because the Republican leadership has said it will filibuster if the Democrats cannot get 60 votes the Democrats needed at least two Republicans to cross party lines.

The Senate version, to be voted on Tuesday, comes to $827 billion. That's actually more than the House's $819 billion. That's because the Senate version includes the annual extension of relief from the Alternative Minimum Tax for inflation. The House version did not include this, and in order to reconcile the two bills either the House will have to cut over $90 billion from what they have already approved or the Senate will have to restore some cuts. Of course, that is all up to the three Republican crossovers. Any two of them could scuttle the whole deal.

The caucusers pruned the easy, low-hanging fruit, of which there was precious little in this bill compared to the usual Washington budget offering. Nobel economist Paul Krugman mentioned tonight it was less than 2%. At any rate, 83% of the $110 billion in cuts come from seven items. They are: Aid to State Education Budgets $20 b, Aid to States $40 b, School Construction $16 b, State Incentive Grants $ 7.5 b, Higher Education Construction $3.5 b, Federal Building Greening $3.5 b, and aid to implement No Child Left Behind $600 million.

These are not cuts of "pork barrel spending." Except for the Federal Building Greening, which of itself is a wise investment that will pay for itself in a few years while helping clean the air, they all represent programs directly related to saving or creating jobs by getting fiscal aid to states hard-pressed by the recession. Forty-six states face deficits due to the recession. On Meet the Press this morning Rep. Barney Frank (D-MA) said, "That's the wasteful spending that my colleagues are talking about. Money to go to the states to stop them from laying off cops and firefighters, money to help keep teachers going. Those are jobs."

His counterpart on the program, Sen. John Ensign (R-NV) pooh-poohed Frank's contention. "You know, that's just fear mongering. We're not going to be doing that in any of the states. (The states') budgets are bloated, the federal government's budget is bloated. What we should be doing is cutting back." You can read a synopsis and see the comment here

As so often seems to be the case, the Republican is wrong not only on the economics but also on the facts. The Center on Budget and Policy Priorities reports that already

Florida has cut aid to local school districts for the current year by $140 per pupil. South Carolina has cut per-pupil funding by $95 in the current year. Maine has cut K-12 funding about $140 per pupil; this comes on top of education cuts earlier this year that were targeted to reduce specific programs. Georgia’s governor has proposed cutting aid to local school districts for the current year by $115 per pupil, and for the coming fiscal year by $189 per pupil.

The report mentions an additional twenty-three states in the process of initiating drastic education cuts of their own. It then concludes,

State deficits over the next two and a half years are likely to total more than $350 billion. With education accounting for such a large share of state general fund budgets, it is difficult for states to avoid these types of damaging cuts — which will only get deeper as the recession continues. The federal government, which can and should run deficits during a recession, could provide assistance to states to help them avoid these actions.

And this is only the effect on education. With deficits like these in prospect there are likely to be similar pressures on law enforcement, sewers, water, parks, libraries, public health and all the other things state governments do. Sen. Ensign and his ideological soul mates may think cutting these appropriations will save money, but in the long run they will cost a great deal of it when states, counties, cities and school districts have to lay off hundreds of thousands of workers to balance their budgets.

If the Stimulus package passes in its present form expect a hue and cry from desperate governors (including big-state Republican heavyweights Arnold Schwarzenegger of California and Charlie Crist of Florida who have already spoken about the critical need for these funds) demanding reinstatement. Economist Krugman also said the package may already be too small as it is. He reported consumer spending is expected to be off $2.8 trillion in the coming two and a half years and the Stimulus is now at barely $800 billion. For these reasons I do not believe all these cuts will ultimately stand.