Oh, Yeah, the States

Zachery Goldfarb of WaPo has an important article today on the element of national economic policy that many in the chattering classes happily and consistently ignore: the forced austerity policies of state and local governments. The raw numbers really are pretty shocking:

Today, as Obama seeks another term, the heavy job losses at the state and local level remain a significant economic concern. His response at different moments underscores how the president has sometimes fought hard against the political odds for policies he thinks crucial and at other times relented when the chances of success seemed low.

Since the beginning of his term, state and local governments have shed 611,000 employees — including 196,000 educators — according to government statistics. Unlike the recovery in private-sector employment that Obama and his reelection campaign often cite — with businesses adding 4 million jobs since hiring hit its low point in 2010 — the jobs crisis at the state and local level has continued throughout his term.

And that’s just the negative impact on jobs attributable to direct hiring and firing by state and local governments: not the indirect effect of cutbacks in the services these former employees used to provide, much less cutbacks in the counter-cyclical programs offering financial assistance to people struggling with a poor economy, which, in our system, are largely administered by the states.

Most of Goldfarb’s piece is about the on-again, off-again, focus of the Obama administration on assistance to state and local government to offset or prevent employment reductions, particularly in education. He attributes most of the “off-again” tendencies to opposition from congressional Republicans. That is entirely true, insofar as Republicans these days (even at the non-federal level) habitually refer to federal aid to state and local governments as if it were some form of welfare or “bail-out” rather than an effort to contribute to shared public responsibilities.

But there is a more pervasive tendency in Washington simply to treat lower levels of government as provicincial bailiwicks not much worth talking about unless they are sponsoring presidential primaries or casting electorate votes or maybe reshaping congressional districts. During the lengthy debate over economic stimulus proposals in 2009, you could be relatively well-read and never know that the bulk of “state and local aid” in the Obama proposal was for a Medicaid “super-match” aimed (with only mixed success) at keeping states from slashing benefits or eligibility precisely when the ranks of the un- and under-employed were most likely to lose health insurance. To this day discussions of ObamaCare often omit any but a footnoted reference to the role of an expanded Medicaid program in extending health care to the previously uninsured.

This blind spot extends to all sorts of other elements of national policy. Conservatives are constantly complaining that poor people don’t pay federal income taxes (probably as a build-up to “tax reform” proposals that will reduce or kill the Earned Income Tax Credit). Progressives often note that this is extremely misleading because the working poor do pay highly regressive federal payroll taxes. But that tax burden is actually dwarfed by what low-income people pay in state and local taxes, as the Center for Budget and Policy Priorities–a Beltway oasis of interest in how the policies of different levels of government interact–has pointed out:

[L]ow-income households as a group do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households paid an average of 4.0 percent of their incomes in federal taxes in 2007, the latest year for which these data are available — not an insignificant amount given how modest these households’ incomes are; the poorest fifth of households had average income of $18,400 in 2007. The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10.6 percent of their incomes in federal taxes.

[But] even these figures greatly understate low-income households’ total tax burden because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2011.

When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.

Conservatives do, of course, yap about the states all the time, but more as an abstraction: as a place where federal governing responsibilities can be sent to die. The actual, specific impact of, say, the Ryan/Romney proposal to turn Medicaid into a “block grant” with steadily declining federal funding is rarely discussed amidst the lofty discussion of federalism or “subsidiarity.”

Widespread publicity over the last couple of years about state-level battles over collective bargaining rights, access to abortion or contraceptive services, and restrictions on the right to vote, have significantly raised awareness among progressives that the most important policy developments don’t necessarily occur in Washington. But the interest level should become more than episodic.

Back in 2009 Harold Pollack and I wrote an article for the New York Times‘ Economix blog arguing that policymakers and journalists alike begin thinking in terms of a national budget in which the combined resources and responsibilities of all levels of government be taken into account simultaneously. It’s still a good idea. I just hope it doesn’t take a national calamity driven by GOP “federalism” proposals to give it traction.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.