Sunday, February 08, 2009

Congress: Don’t Cut Aid to States

While the dollar totals of the House and Senate versions of the Economic Stimulus bills are just about the same, one big difference is that the Senate version cut the amount of aid to state governments from about $60 billion to about $20 billion.

This is such a very bad idea. If the House does anything to rectify this bill, it must put that state funding back in.

And I will tell you why.

States get the cash to run things in large part from property taxes. Some states more than others. And who pays most of these property taxes? Big corporations.

Big corporations that are, by the way, becoming economically strapped themselves because profits are turning into losses. Some of these businesses will gut it out, some will benefit from the stimulus, but some of them are going to go belly up or file for bankruptcy under Chapter 11.

Businesses and corporations that contribute a good deal towards the funding of state and local services simply aren’t going to be there anymore. And when that happens where are the states going to get their funding to say, run a police department, staff a school, or pay the salaries of early responders?

Case in point. A multinational chemical firm with a huge presence in the Houston area, LyondellBasell has filed for bankruptcy under Chapter 11. This Dutch-owned company has chemical plants all over the Houston area and suburbs. A big presence in Pasadena, Houston and Galena Park. In total, LyondellBasell pays $113 million in property taxes. Taxes that go toward funding things like school districts and municipal services like police and fire protection.

And on Monday, February 2nd, those taxes for 2008 were due.

But the only thing that came out of the treasury coffers of LyondellBasell last Monday was . . . crickets.

The sound of crickets and no promises of this critical funding anytime soon.

From the Chronicle:
“Meantime, some local school districts, municipalities and counties where LyondellBasell has operations said they could face holes in their budgets because of the shortfall in collections.”

“Take the Pasadena Independent School District. Closely linked to the company through teachers whose spouses work at a nearby plant and plant workers’ children who attend its schools, the district also relies on $2 million a year in payments from the chemical maker.”
Now there are some states where bankruptcy of big chemical firms won’t affect the bottom line because their taxes don’t go to pay the salaries of teachers and policemen. States like New Hampshire, which funds its schools through taxes on liquor and cigarettes.

But that is of little comfort to those states that rely on corporate property taxes to fund their basic services.

And tragically, the Senate has placed in their stimulus bill a provision to allow fewer upper middle class Americans to have to pay the Alternative Minimum Tax, to the tune of $79 billion. This is “trickle down theory” writ large. A theory that has been totally discredited.

So the last thing, the very last thing you want to do in these times is remove the states from the stimulus bill, especially when you add, in its place something that prevents upper end middle class from having to pay the AMT. These are not the people, after all, who need stimulus.


Bob said...

In general I think now is the worst time to be cutting taxes for wealth Americans (but of course "wealthy" is a loaded word).

However,, I think changing the alternative minimum tax is way overdue and I hope the House adopts the Senate portion doing same.

The intent of the original tax was to assure that somewhat wealthy (there's that word again) Americans at least had to pay a minimum amount in income taxes if they loopholed out of the system otherwise.

But Congress forgot to index the thing for inflation, and if Congress doesn't fix this oversight very soon, a family making as little as $45,000 (according to recent AP reports) could now find itself forced to file income taxes under the alternative tax. That could cost them $2,000 or more in taxes.

That represents much too big a percentage of their total income even in good times, it seems to me. In hard times, it's really unfair.

Anonymous said...

It's time for the government to contract on spending as the large corporations are and not ask for more taxes from the suffering middle. Both of the recent spending packages are nothing but pork for certain industries are have given the government the power to pick the winners. I do not want to pay for that.

Hal said...

Bob, OK, let's agree that states need the infusion that will be denied them given the times. Let us also agree that the government hasn't indexed the AMT to inflation. Can we agree that the 40B loss to the states should be offset from the 73B from the AMT? 33B for AMT, 40B back to the states?

Anon, the time for government to contract on spending is entirely wrong right now. No one is spending money right now. I know I am not. If no one is spending at this time, the only entity that spends money right now that makes sense in the government.

Agreed there is pork. Blame the past eight years when we had no opportunity to promote the agenda. We will do this thing correctly. The alternative is too hard to contemplate.

Anonymous said...

Hal--borrowing money from China to give us tax breaks to keep us in line is not my idea of stimulus and I do remember reading how you attacked the last "stimulus package" when it came from across the aisle. My position is consistent and I do not support more welfare for the rich at the cost of the middle. We've lived in this inflated economy for so long we've forgotten how to moderate and I do not want my kids and grad kids saddled with this mistake for years to come hoping the economy will suddenly lurch forward. Global recessions are cyclical as has been consistently documented. What's sad about this whole thing is how partisan it has become and how greedy it looks.

Too bad we are the ones picking up the bill for the spend thrifts. I don't know anyone who can afford this attack on the taxpayer. We couldn't afford it when the republicans did it and the taxpayer can't afford it now.

Sorry we disagree on this, but my position is consistent and not part of some partisan game.

Anonymous said...

Two questions for you:

1) Do you think you pay too much in taxes?

2) What do you think about GM's plan to use bail-out money to upgrade its production capacity in Brazil?

Bob said...

Hal, I agree much more money needs to be in the stimulus bill for the states. If other states are anything like Texas, state spending was cut back some time ago to the point that basic service levels are gone in many areas.

I am glad I'm not in charge of trying to jump-start this economy, but if I were, I'd be concentrating on how to create new jobs and how to generate consumer confidence. I think a person with a job that doesn't appear to be threatened is a person with confidence.

I don't know how you get there from here, but I'm pretty sure the circular trail they kept blazing for the past eight years doesn't go there.

Anonymous said...

It would appear to me that this back-n-forth game between the lesser of two evils is a zero sum game. Someone give me another option!

Anonymous said...

When our government is no longer run by the corporate welfare bunch (vendors and contractors) then just maybe we will have a real choice again.

Anonymous said...

Why do I want my tax dollars to support California's moronic spending habits?

Texas has been careful with it's money, because we're conservative!

Anonymous said...

Hal obviously thinks he is not taxed enough. He wants to pay more.