Thursday, February 24, 2011

Local Washington News: Fed Budget Cuts are Going to Hurt

The federal government budget cuts are going to have an impact. The budget passed by the House recently calls for significant reductions in money available for higher education, namely Pell Grants. In my home state of Washington there would be $82 million less for students attending college.

You know, everyone is going to complain about something when/if the House budget becomes law. Fewer dollars for transportation projects, so roads will continue to deteriorate. Fewer dollars for education, so class sizes might have to increase and some programs will have to be eliminated. Fewer dollars for the elderly, so now they will have to pay more out of pocket expenses.  All of these are going to hurt, and in some cases, hurt a lot. But what can we do about it? Federal programs have becomes much too expensive and there just isn’t enough money out there to pay for it all.

Some would argue that we need to increase taxes, big time, to cover all of these programs at current funding levels.  But it was shown that even if the Bush Tax Cuts had been allowed to expire, the added revenue would not have been enough to cover the debt payments and fund government programs at current levels.  And increasing taxes beyond those levels is a no-go also if we want to get this economy going again.  There is historical precedence. During the period called the Great Depression (1929-1940), the economy showed some signs of recovery in the first half of 1930 as the stock market showed increases and job losses slowed (sound familiar?).  Then several things happened which sent the economy into a tailspin from which the US did not recovery for almost a decade. Two events were probably most culpable in stopping any sort of recovery. The Smoot-Hawley Tariff Act, and the exceptional tax increase on the wealthy which took rates above 70% for the richest. Both of these absolutely killed jobs. The tariff increases basically put importers out of business and the tax rate increase most likely kept money out of the economy by shutting down investing.

Bringing us back on topic, there is going to be some hurt felt by a great money people as Congress struggles to get federal spending under control.  Yes, I do blame President Obama for the current budget crises, but Bush is not off the hook completely. We could have survived these hard times if the deficits had been kept at the manageable levels under Bush, but there would have been some need to trim some of the fat. But with Obama’s spend now, ask for tax dollar later philosophy, what could have only been troubling has turned into a full blown catastrophe.

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