Collateral Damage: Poor Hit First By States' Woes

by Elizabeth Sherman

Dissident Voice

April 8, 2003


With the war in Iraq well under way, itís not surprising that Americans are focused on reports from the field and terror alerts rather than questions about who is going to pay for the war and its aftermath.


So far, the Bush administration has decided to borrow from the capital markets to finance current expenditures, a strategy that will inflate deficit spending to the tune of $400 billion, and potentially raise interest rates. Even Federal Reserve Chairman Alan Greenspan warned, much to Bushís chagrin, that budget deficits will need to be paid for, and that, in fact, such a stimulus was unnecessary.


But the Republicansí domestic economic program is even more worrisome.


Instead of paying more in taxes at a time of soaring costs for defense and homeland security, the nationís corporations and wealthiest taxpayers will pay less, as some large percentage of the presidentís tax cut of $1.4 trillion for the next 10 years, goes through.


And how will those tax cuts be financed? At least in part by deep cuts in mandatory and discretionary programs amounting to $465 billion. That includes funding for Medicaid, cash assistance to the poor elderly, food stamps, student loans, school lunches, the environment and even veterans programs.


The Republican congressional leadership rationalized the cutbacks as necessary for "fiscal discipline" while insisting that tax cuts for the top 1 percent of taxpayers, which would exceed the reductions in social spending, are economically prudent. If this is not the equivalent of a moral Bizarro World, I donít know what is.


For the states, the presidentís economic plan will only exacerbate an already dire fiscal situation. Massachusetts, for example, faces wrenching cuts in Medicaid for its poorest and most vulnerable citizens, and deep reductions in reimbursements to hospitals, physicians and nursing homes already reeling from financial crises associated with the economic downturn. To make matters worse, Massachusetts stands to lose $2.67 billion in federal assistance, primarily in funds earmarked for Medicaid and poor childrens' health programs.


In short, the costs of the war and the Republicansí tax cuts will be paid for in cuts to programs that help those citizens with the fewest resources -- those who are most dependent on the government for health care and a minimal standard of living.


With the costs of such programs loaded onto states already weakened from the slack economy, itís worth asking whether Americaís corporate sector contributes its fair share.


A study in Massachusetts found that one-third of the top 50 corporations paid only the required minimal annual state taxes -- or $456 in the year 2000 when profits were still robust. No doubt loopholes in the tax code and creative accounting enabled corporate giants like Ratheon, Staples and FleetBoston to pay $2,339 less than the median individual Massachusetts taxpayer. Tax fairness indeed!


With Republicans in control of Congress at the national level, and armies of corporate lobbyists deployed by Treasury Secretary Snow to keep them in line, we can expect the presidentís ideological assault on social programs to continue.


States like Massachusetts face tough choices in the weeks and months ahead. Will they rescind some of the generous tax breaks of the go-go 1990s that mainly benefited wealthy individuals and corporations? Or will they abandon the poorest individuals who rely on public spending for basic health care? Itís well past time to consider how these decisions reflect on what kind of society we have become, or whether, after all, we really care.


Dr. Elizabeth Sherman is a fellow at the Center for Public Leadership at the Kennedy School of Government, at Harvard University. This article first appeared in TomPaine.com (www.tompaine.com)††



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