The tax cut game that Obama has decided to join to appease the Republicans (who won't join him regardless) is shortsighted and ignores the looming state and local funding problems. California, anyone? For decades the GOP has played this game and sure, you can cut taxes at one level but everyone knows that the money will still be spent for services that people want so the money has to come from somewhere. Cut state taxes - hooray! - and surprise, local taxes go up. In this case, cutting or continuing federal tax cuts will still leave enormous deficits at the state level so sooner or later, that money is going to have to be found.
Pretending as though it's not an issue is irresponsible and it's likely taxes will go up considerably very soon. The alternative is going to be even more slashing of budgets but besides the Republican states who prefer trolling at the bottom, who wants to cut important services such as education or basic infrastructure? It's not entirely clear where the Obama team thinks the money is going to come from but then again, Republicans never have grasped such ideas. Obama seems stuck in a pre-credit crisis mindset with economics despite that old system collapsing. He is more progressive than McCain, but hardly progressive.
Why is his team directed by the old guard who guided us into this mess? Where are the progressive economists who predicted this economy or who detailed why the old system was failing the majority and benefiting the minority? Obviously Obama was our best option in the election but he is going to have to come around very quickly on the economy or else he will be a one and done. Running the economy is not the same as making campaign promises.
But President-elect Obama, faced with the biggest financial and economic crisis since the Great Depression, has pledged to go slowly on tax hikes, which he fears would take consumer demand off life support and put it in the morgue. He's made some tax cuts a cornerstone of an economic-stimulus package Congress will debate in coming weeks.
No, the real danger to your wallets comes much closer to home -- from cash-strapped states and municipalities, which are in their worst shape fiscally in decades.
Though they may resist at first, governors and state legislatures could be forced to raise income taxes, sales taxes, state university tuitions, transit fees and whatever else will help pay the freight.
That may mute the impact of any federal stimulus package, because if one government takes while another gives, you'll still have less money to spend at the mall.
The situation is dire. The recession and the housing crash have landed body blows to local governments, severely reducing tax revenues. The National Governors Association projects fiscal 2009 budget shortfalls may reach $60 billion, and fiscal 2010 deficits could top $80 billion.
The Center on Budget and Policy Priorities, a Washington, D.C.-based liberal think tank that focuses on state and local finances, says: "Combined budget gaps for the remainder of the fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion."
