Cut State Budgets, Let the Feds Run Deficits

TW: The majority of states are facing significant budget deficits with CA being the poster child. As we have mentioned before, if the states cut spending or raise taxes it is pro-cyclical into the face of the demand contraction, which only makes the demand contraction worse. Unlike the federal government states are constrained on their ability to run deficits so either the taxes or cuts must be enacted.

I am coming the conclusion that states biting the fiscal bullet and initiating their contractionary measures and letting the feds sort out the necessary deficit funding to prevent the Great Recession from evolving into the GD 2.0 is inevitable and necessary. I would add increasing state level taxes in those states with relatively high taxes should not be the approach either. Service cutbacks are the answer- pensions, fire/police/prisons/groundskeepers/clericial everything and anything except maybe infrastructure.

Folks will suffer to a degree but it has to happen. Below from a lefty CA site whines about their cuts. But as one can see the cuts are not even covering most of the gap, much of the gap is covered with accounting gimmickry and grabs from local government. And of course as seen by the second article the "agreed upon" cuts are already raising a ruckus. Americans need to start making tough choices. The states are metaphors for the federal government. But implementing a federal belt tightening amidst the Great Contraction will raise the odds of GD 2.0. There will be time enough for the federal cuts (and taxes) later.

From Calitics:
"...$15 billion in cuts, no new taxes, $11 billion in gimmicks and borrowing $4-5 billion in local government raids only an $800 million reserve (initially the talks were for a $4 billion one)

$6 billion in reductions to public schools...
$1 billion assumed for the sale of the State Compensation Insurance Fund, which is not only unlikely but would really crush small businesses if sold
...three furlough days a month for some state employees still in place for the rest of the year $500 million in cuts to Cal Works smiles all around from Dem leg. leaders as they cheer that "we did not eliminate the safety net for California." Poking a big hole in it, apparently, qualifies as A-OK. ...
we're also cutting $1.2 billion to corrections without releasing any prisoners, as per the actual politics as usual. The only way you can do that is by cutting every treatment or rehabilitation program in the prisons, or eliminating overtime for corrections officers. In other words, we're turning prisons into Public Storage units."
http://calitics.com/diary/9432/yay-deal-by-David-Dayen

From LA Times:
"...Less than 24 hours after Gov. Arnold Schwarzenegger and legislative leaders announced a plan to close California's massive budget deficit, Los Angeles County officials moved to sue the state, a union for government workers said it might strike, and Republicans threatened to back out of the deal over a provision to cut the number of prison inmates by 27,000.