Debate Forum: Left 3/1/11

The Myth of the Deficit

By Rana Odeh

Rana Odeh

Republican governors in Wisconsin, Ohio and New Jersey are attacking public service unions and blaming them for the states’ budget deficits. Limiting collective bargaining by public employees is by no means going to solve the deficit problem. State budget deficits are caused by recessions rather than collective bargaining rights. The Republicans are taking advantage of the recession to justify major cuts in social services and working class support networks. Public service unions are now the only major threat in the labor movement that anti-union politicians want to dismantle.

According to John Nichols of The Nation, the January 2011 estimates of the Wisconsin Legislative Fiscal Bureau showed a surplus of $123 million for the current fiscal year. The state’s budget turned into a deficit only after the big tax cuts that Wisconsin Governor Scott Walker has granted to big corporations. And now he turns around and blames the deficit situation on public service unions.

A state’s deficit is affected by two variables: the level of spending and the level of tax revenues. During a recession, tax revenues naturally decline because more people are unemployed, therefore they are not paying income tax. With more foreclosures, property tax revenues go down, and with more unemployment sales tax revenues also decrease. This has nothing to do with public sector unions or state employees.

At the same time, during a recession, state expenditures naturally increase because unemployment leads to an increase in demand for social services that are funded by the state. With a higher demand for welfare benefits, the state ends up spending more during a recession than during periods of high economic growth. Again, this also has nothing to do with public sector unions and everything to do with the recession.

The tactic used by Republicans to crash labor unions is very clever. They focus on tax cut policies to gain popular support amongst the working class, but they give a disproportionate advantage to big corporations, insurance companies and banks. The overall result is a huge decrease in state tax revenues, which they then use as an excuse to cut spending and to attack public service unions. What the Republican working class and members of the Tea Party fail to realize is that there is absolutely no politician who is working in their best interest. Budget cuts and the Wall Street bailout negatively affect us all, working Democrats and Republicans alike.

Big corporations are practically blackmailing states into offering them tax advantages in order to not relocate their business to another state or even another country. So, states are racing to the bottom in order to attract big corporations and lure them in with tax incentives, which is ruining state finances and giving corporations even more leverage to get what they want. An end in the near future to the government big corporation alliance does not seem promising considering the recent Supreme Court decision that removed limitations on corporate funding of elections. One politician does a favor here, one corporation does a favor there and the alliance continues to ignore the rest of the American population while it violates our democracy and human rights.

If Republicans are serious about deficit reductions, they should go after those who caused the recession in the first place. It is hedge funds, investment banks and other Wall Street speculators that caused this economic meltdown. The irony of the situation is that it is the perpetrators of the economic crisis that got bailed out rather than punished and now Republicans want the American working class to pay the price for Wall Street’s fraudulent behavior. It is precisely the stock market crash that has ruined state pensions, which is putting a huge hole in state budgets. State employees’ pensions that are invested in financial markets have experienced a serious decline since the beginning of the crisis. States, however, are committed to providing the retirement benefits that they have promised their employees, but now Republicans are attacking public service unions so they can put an end to the democratic bargaining process. This is the extent to which Republicans are willing to go in their support to Wall Street against the interest of the American people and the American economy.

The only solution to increase tax revenues and decrease government spending is to ensure that everybody who is willing and able to work has a job opportunity available to them. Budget deficits are the direct result of economic recessions. So, if we take care of the recession, the deficit will take care of itself; it is as simple as that. The government has already spent more money bailing out big banks than it would cost to give all the unemployed a full time job with benefits. There is no excuse for this counterproductive behavior, because the bailout was ineffective, and financially much more burdensome than directly employing all the unemployed under a New Deal type program.

Rana Odeh is a graduate of the University of Dayton with a degree in English and Philosophy.  Her research and writings focus on issues of race, class and gender.  She can be reached at

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