Budget Chainsaw Massacres

The Editors

IN CALIFORNIA, A $2 billion shortfall for education alone was projected for the current budget, with 2100 full-time teachers facing layoff notices, in addition to axing all emergency and probationary teachers. In New York, Massachusetts and dozens of other states, the budget chainsaw massacre is repeated: “Forty percent of all states had to cut their budgets in fiscal 1990,” writes Randy Albelda in the October 1990 issue of Dollars and Sense, and the situation continues to deteriorate with the 1990-91 recession.

Why? Obviously the recession is massive factor in worsening these budget crises, but it’s not necessarily their major structural cause. State and local governments are broke as the result of political and ideological campaigns that have drastically lightened the tax burdens on corporations and the wealthy, and because the federal government has passed along its deficit from the debt- and military spending-propelled policies of the Reagan years. The national deficit itself is now a barrier to strong capitalist recovery; as mass structural unemployment worsens, welfare costs rise at the state level even as revenues fall, producing a downward and frightening spiral. Since 1978 the federal government has reduced its aid to state and local governments by 10% in real terms.

Facing huge deficits, state and local governments with few exceptions have attempted to deal with the shortfall by cutting education, healthcare and human-services programs and implementing regressive taxation schemes in order to balance the budget With the new fiscal year, the cuts will be even deeper producing human misery on a scale that enthusiasts of liberal capitalism used to claim had been overcome forever in the United States.

Some politicians, like Philadelphia’s Mayor Wilson Goode (Democrat), have come up with such novel ideas as letting prisoners out of jail early and offering to put up Veterans Stadium for sale. Detroit’s Mayor Coleman Young (Democrat) is planning on selling off the city’s toxic garbage incinerator—and given the tax break, there’s a buyer. Others, like newly elected Michigan Governor John Engler (Republican) seem to be running for the ax-murderer award of the year.

In the first round of cuts 100,000 Michigan families (500,000 children) had their ADC checks slashed by 17%—or an average of $83 a month. Checks to foster-care parents were cut by 22%—restored after some literally went on strike in response—while Medicaid payments to hospitals and health-care providers dropped 184%. Services that are not mandated by federal law—ranging from physical therapy provided by home health-care agencies to cab fare, enabling people to come into the hospital rather than be institutionalized—were eliminated.

Michigan Department of Social Services director Gerald Miller announced that the state Medicaid system will “run out of money” in August, at which point Michigan will “disenroll” from the program until the new fiscal year in October.

Last-ditch appeals are temporarily blocking Engler’s termination of General Assistance for 95,000 single adults (average $180/month), which he imposed essentially by an administrative decree that bypassed the state legislature. A political deal will probably determine how many recipients’ benefits are dropped, among those to whom Engler refers as able-bodied adults.” In fact the majority has not graduated from high school and often suffers from multiple disadvantages when looking for work, ranging from lack of transportation to substance abuse (treatment facilities for which are virtually nonexistent).

But whether the state and local governments are administered by Democrats or Republicans, the solutions hit low and moderate income families hardest. In New York, Governor Mario Cuomo (Democrat) has raised the tuition $500 at the New York public campuses and cut state financial aid programs. He has proposed $92 million worth of cuts in the CUNY (City University) system, leading to a hiring freeze. Yet the majority of the CUNY student body comes from homes where the annual household income is less than $25,000, two-thirds are students of color and a majority is women. The SUNY (State University) system is also slated for cuts, although not as deep—perhaps because 85% of the student body is white, and the majority is from middle-class families.

California’s nearly $15 billion deficit—a function of the triple whammy of recession, rising population pressure on services and twelve years of property and business tax cuts—is to be attacked by combining a 1.25 cent regressive sales tax increase with staggering cuts in education and passing health-care responsibilities and costs to the counties, with results that can easily be imagined, and an 8.8% cut in aid to ADC mothers.

A worst-case “doomsday” budget drawn up for the Los Angeles school district—where cuts of up to $177 million are contemplated—imposes for openers a 7% wage cut for all employees, in addition to mass teacher layoffs and the gutting of vocational, arts, physical education, counselling and speech therapy programs. Tragically, the United Teachers-Los Angeles (UTLA) union is offering to support a suspension of the state’s Proposition 98, which requires that 40% of the state budget be directed to education. In exchange, a slight increase in upper-income individual tax rates would besought, possibly raising $1 billion for education in the short run but leaving all other cuts in services unchallenged.

This is an example of the narrow approach that cannot and will not beat back the budget attack. The attack on fundamental human needs is not sectoral or narrow; it is global It is not a question of whether education or welfare or healthcare are “more important” or have the strongest lobbies to protect them; it is a question of defending all of them.

The budget crises of states and cities is not an “objective” one, but is imposed by the regressive fiscal structure of U.S. society at every level. Between 1980 and 1990, the net federal tax rate of the poorest 20% of U.S. families rose by 16% while the rate paid by the wealthiest 20% fell by 5.5%. Yet the Washington-based Economic Policy Institute recently documented that state and local tax systems—mainly put into place by Democrats—are more regressive than the federal tax system, crafted by the Republicans.

In large part the misery remains hidden from those who don’t experience it. The full extent of projected cuts is rarely implemented all at once: Legal battles, political and bureaucratic compromise produce partial restorations. This brings sighs of relief and illusions that the “truly needy” remain protected, which they are not and were not even under previous social-service funding; and the ideological ground shifts further rightward in preparation for the next round of attacks.

A Fiscal Answer

A radical budget—not a socialist solution, but a fiscal answer to the deficit—would begin by cutting the federal military budget 50%, diverting $150 billion to social-service needs. Such a budget would increase taxes by those most able to pay, generating additional revenue through a graduated income tax. In 1989 the World Policy Institute estimated that such a federal tax would generate $123 billion more yearly. (Currently the top tax bracket pays a rate of 28%.)

Additionally, revenue could be generated by increasing rates on capital gains and inheritance taxes, by raising social security and unemployment insurance taxes for high-income earners, and by taxing services—such as accounting—that are patronized by wealthier consumers. Today only five states tax business services, including Massachusetts, which just introduced a comprehensive 5% business tax a year ago. Robert Fitch, writing in the October 29, 1990 issue of The Nation, cites a Port Authority estimate that if New York City taxed the legal and financial services, advertising, public relations, etc. at the annual rate of 4%, they would generate nearly an additional $1 billion a year.

Finally, at every level of government, corporations demand exemptions. For instance, in New York City the Industrial and Commercial Incentive Program cost $108 million in 1990 alone. Originally this tax abatement scheme was to stimulate the city’s dying manufacturing industry, but it didn’t work and today almost no money goes to industry. Those who received New York City grants in 1990 in-dude Japan Air Lines, McDonald’s, White Castle and Con Edison.

Exemptions fueled real estate speculation throughout the 1980s. Corporations vied to get on the gravy train. In the state of Michigan, it has been years since exemptions have been subject to review. The result: The yearly Michigan exemptions are equal to the annual state budget. The solution: End the exemptions.

The proposals cogently outlined by Robert Fitch—taxing land used for commercial purposes, taxing “elite nonprofit” institutions like Columbia and NYU, taxing business services like law and banking instead of consumer necessities, taxing the stock exchange, and removing developers’ exemptions—have general applicability and should be programmatic weapons for coalitions that are emerging to confront the cuts. “The class that caused the crisis ought to be taxed to pay for it,” Fitch rightly states.

There is emerging resistance: In Michigan, a sit-in by budget-cut victims occupied the State Plaza building in downtown Detroit for almost three weeks, and a petition drive to recall Engler is underway. At CUNY, resistance took the form of a student strike and mass demonstrations in New York City and Albany. The struggle at CUNY attracted significant labor support, but in most places unions have been regrettably slow to address the crisis outside their own immediate sector, and often not even there.

If ever there was a time when mass solidarity was the condition for survival, it is now. An important beginning was the April 30 demonstration of 50,000, called by the new Coalition to Save New York, 400 organizations initiated by AFSCME District Council 37 and Hospital Workers Local 1199. The banners read “No Budget Cuts! Tax the Rich!” To be sure, working people can ultimately end the capitalist crisis not by taxing capital, but only by expropriating it Short of this, partial solutions exist, but only if the biggest welfare recipient—the war machine—is dropped from the rolls.

July-August 1991, ATC 33