Riffing off of Brian’s post referencing the horror show of a Field Poll, where Californians polled apparently think we can balance the budget through spending cuts but don’t want to cut anything (a sort-of companion PPIC poll basically shows the same thing, with respect to nobody wanting education cuts but nobody wanting to pay for increases), this should be a very familiar outlook to people.  It’s at the heart of the two Santa Claus theory, proposed by Jude Wanniski, a Republican economist, during the time of Ronald Reagan.  

By 1974, Jude Wanniski had had enough. The Democrats got to play Santa Claus when they passed out Social Security and Unemployment checks – both programs of the New Deal – as well as when their “big government” projects like roads, bridges, and highways were built giving a healthy union paycheck to construction workers. They kept raising taxes on businesses and rich people to pay for things, which didn’t seem to have much effect at all on working people (wages were steadily going up, in fact), and that made them seem like a party of Robin Hoods, taking from the rich to fund programs for the poor and the working class. Americans loved it. And every time Republicans railed against these programs, they lost elections […]

Wanniski decided to turn the classical world of economics – which had operated on this simple demand-driven equation for seven thousand years – on its head. In 1974 he invented a new phrase – “supply side economics” – and suggested that the reason economies grew wasn’t because people had money and wanted to buy things with it but, instead, because things were available for sale, thus tantalizing people to part with their money. The more things there were, the faster the economy would grow.

At the same time, Arthur Laffer was taking that equation a step further. Not only was supply-side a rational concept, Laffer suggested, but as taxes went down, revenue to the government would go up!

Neither concept made any sense – and time has proven both to be colossal idiocies – but together they offered the Republican Party a way out of the wilderness […]

Democrats, (Wanniski) said, had been able to be “Santa Clauses” by giving people things from the largesse of the federal government. Republicans could do that, too – spending could actually increase. Plus, Republicans could be double Santa Clauses by cutting people’s taxes! For working people it would only be a small token – a few hundred dollars a year on average – but would be heavily marketed. And for the rich it would amount to hundreds of billions of dollars in tax cuts. The rich, in turn, would use that money to import or build more stuff to market, thus increasing supply and stimulating the economy. And that growth in the economy would mean that the people still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could ever win again. They’d have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections.

In the intervening 35 years, we have had no progressive leader in California, no Democratic leader, challenge that ridiculous theory in any meaningful way.  Instead, over and over again, Democrats must lead the charge killing off the two Santa Clauses, filling budget deficits by raising taxes or cutting spending, frequently the latter.  And while other factors have contributed to Democratic dominance in recent years, the ideological theories of Santa Claus conservatism remain.  And Democrats and Republicans alike have ingrained them into their lizard brains, either by believing in them, or believing that everyone else believes in them and there’s no way to change that.

In truth, public opinion, particularly in such a low-information state like California, is quite malleable.  But nobody has bothered to discredit the Two Santa Claus theory, the idea that we can have all the services we need and the lowest taxes possible.  Of course, the insidious dynamic of the two-thirds rule, putting Democrats both nominally in power but subject to a conservative veto, has made a Democratic message impossible, so constrained it is by the straitjacket of an ungovernable system.

Now, the out for the believers in two Santa Clauses is that government can just do more with the money they have, through better efficiency.  Nobody would argue that government is perfectly efficient – I don’t see anyone leaping to defend spending $580,000 on unused office space – but the savings from that efficiency exist on the margins, and would do little to really impact our woefully low per capita state spending on areas like K-12 education.  So we get bullshitty ideas like cutting lawmaker pay (the Governor jumped all over that one), or trashing the state’s Waste Management Board, which has become a waystation for termed-out legislators to pull in a nice salary.  These “efficiency” maneuvers would do absolutely nothing relative to the budget deficit.  And the areas that would make a dent, like a broader-based sales tax that catches everything we consume, if off-limits because of special interest lobbying:

The declining “yield” of the state’s sales tax is one cause of California’s ongoing budget deficits. Since 1960, the revenue raised by each one percent state sales tax rate has fallen by about one-third. The reasons for the decline are two-fold. First, consumers now spend a larger share of their incomes on services, which are largely untaxed, rather than goods, which are subject to the state’s sales tax. The second reason is the rise of internet sales, including purchases from out-of-state retailers, that don’t collect the tax on sales made to California consumers. Estimates suggest that California loses $2 billion to $5 billion per year from untaxed internet sales – enough to make a significant and lasting dent in the state’s chronic budget woes.

In light of this fact, one might think that a bill that attempts to narrow a loophole that provides preferential treatment for businesses located entirely outside of California would be a “no brainer.” Unfortunately, this appears not to be the case. Assemblymember Nancy Skinner’s AB 178 is similar to a recently enacted New York law, would require businesses such as Amazon.com that enter into “affiliate” relationships with California-based entities to collect California sales tax.

At a time when California faces significant budget shortfalls and California retailers face declining sales, you’d think a bill that makes it possible for the state to actually collect taxes that are legally owed and that limits an incentive for Californians to buy from businesses that don’t employ a single Californian would be greeted with open arms. Unfortunately, opposition from tech industry lobbyists has left the measure’s future in question.

Ultimately, we have a serious problem.  Our citizens get almost no public policy information from media, our state capitol is too often run by corporate interests, our Democratic leadership cowers from advocacy to disabuse citizens of false notions, and our Yacht Party is completely crazy.  This is not insurmountable but requires leadership.  We elected a President by 61% of the vote in California who was derided as a socialist.  Attitudes can be changed.  But someone has to stand up and speak.

Greg Lucas took a look at tax receipts for the first week of April, and the news is gloomy.

In 2008, not exactly a boom year either, $703,166 in personal income taxes was paid in the first eight days of the month.

During the first eight days of April 2009, $456,227 came over the transom.

By April 30 2008, nearly $12.9 billion in personal income tax revenue was collected.

This year, Governor’s Schwarzenegger’s Department of Finance predicts a monthly total of only $8.9 billion in personal income tax receipts.

If the first week is any indicator, revenues may not even meet that lowered expectation.

Lucas surmises that the $8 billion revenue gap for 2010 announced by the Legislative Analyst a few weeks back could potentially double, based on these returns and the possibility of losing particular ballot measures in the May 19 special election.  I don’t think there’s any question that the legislature will return in June to something over a $10 billion gap to deal with.  And as we know, Zed Hollingsworth and the even Yachtier Yacht Party will want to fill that with cuts to already emaciated state services.

(as a side note, I love that there are almost 200 entries in a Google search for “Zed Hollingsworth.”  Memewatch!)

But in fact, there are ways to deal with these problems, even in a down economy, that make the most sense for the vast majority of Californians.  The Commission on the 21st Century Economy released their latest set of reports today, and what jumped out at me was their report on the potential of a split roll property tax, which would keep residential rates at current levels while modifying those for commercial and industrial properties, and as a result, California could see a $7.5 billion dollar annual boost to their budget bottom line.  Obviously, the typical doomsayers like the Chamber of Commerce will come out and call this a “job-killer” and cite the negative impacts on the economy, but considering that even in these rough economic times, corporate businesses just got a $1.5 billion dollar tax CUT, I don’t take their concerns seriously.  They have cried poor for decades, and as a result the state has suffered deeply.  While carve-outs for local small businesses may be part of a solution, having commercial property taxes frozen in amber has led to municipalities literally passing the cup to fund services.

The City of Orinda wants your help, and your donation is tax deductible.

There are no bake sales in the works, but Mayor Sue Severson plans to solicit donations for extras the City Council does not want to pay for out of the general fund.

Donations could pay for events such as Orinda in Action Day, or they could pay for public art such as the popular frog sculpture in the downtown fountain without draining the city’s general fund, Severson said.

“Our budget is so minimal and we have very little flexibility in what we’re able to do,” she said.

The city’s roads and drains need more than $100 million in repairs the city can’t afford.

And Orinda’s average income in 2000 was $132,531.  Imagine the needs of the cities at or below the poverty line.

We cannot survive as a state with this kind of inequity.  The state must be freed from these artificial bonds and allowed to address needs properly in the way every other state in the union can.

I’m telling you, this special election campaign resembles the Bush-Cheney “9-11 9-11 9-11 Terrist comin’ to kill you in your beds!!!!1!” 2004 campaign more with each passing day:

As he launched a radio ad campaign Tuesday for his budget measures on the May 19 ballot, Gov. Arnold Schwarzenegger said failure to approve the package would worsen the state’s already-dire fiscal crisis.

“If they don’t pass, we will be facing a $50 billion problem,” Schwarzenegger said at a meeting with Daily News editors and reporters. “It will mean massive cuts in education, hospitals, prisons. These are things people don’t want to see cut.”

$50 billion.  How does the Governor arrive at that figure?  He includes $16 billion dollars for the two years of regressive taxes that would be washed out in 2012 and 2013 if Prop. 1A fails.  He includes an expected lawsuit from education interests to force payment of $9 billion in raided Prop. 98 funds if 1B fails.  He includes the $6 billion that would not fill budget gaps from the last budget if Prop. 1C-1E fail.  And then… I don’t know, that’s only $31 billion, I guess $50 billion sounds like a nice big number.

You can put it on posters!

This is not the first time the Governor has flat-out made up numbers to win an election.  That was his road to victory in 2006, when he lied about Phil Angelides’ tax programs.  The True Lies are back, and sadly I don’t expect a soul to call him on it.

Let’s partially accept the Governor’s premise and agree that we would have a deficit caused by cutting two years’ worth of tax increases in 2012 and 2013.  Is he suggesting that the legislature would be barred from acting on anything for 3-4 years until that future problem arises?  He might as well say we have a $200 billion dollar problem, extrapolating out to 2050.  

The “doomsday scenario” only exists if you accept the premise of the conservative veto.  Only then does California risk going over the cliff.  A responsible, functional legislature that has the ability to reflect the will of the people of the state is in no danger, which is why the only reforms anyone should be voting for are the full repeal of the 2/3 requirement for budgets and taxes.

Somehow the Governor feels that ratcheting down services and leaving behind millions of Californians is the “responsible” course.  Right now we’re at the bottom of per capita spending in almost every major category – 44th in health care, 47th in per-pupil education spending, dead last in highway spending and 46th in capital investment among all states.  Heck, the state can’t even get people their unemployment checks in a timely fashion.  The so-called “responsible” course has utterly failed, and the Governor and his allies want to constrict this pitiful investment even more.

I will quickly tire of these nonsense efforts to scare people into backing another layer of restriction onto an already failed budget process.  Hopefully the voters feel the same way.

UPDATE: This is amazing.  Shane Goldmacher queries the Governor’s spokesman on where the hell Arnold came up with the $50 billion dollar figure, and look at the response:

“He was speaking hypothetically,” said spokesman Aaron McLear. “His point was if we don’t reform our budget system then we’ll be right back where we were with that huge budget deficit.”

I’m sure he’ll continue to “speak hypothetically” in the most hyperbolic way possible.  Some would call this manner of speaking, um, “lying.”

In both the Friday and Saturday editions of the Los Angeles Times, right on page A1 above the fold, there was a graphic of a “tax calculator,” which projected the additional taxes an individual would pay based on certain factors like income, number of dependents and values of vehicles.  They have a corresponding tax calculator on their website where users can type in the data and get the precise tax hit coming to them.  The Sacramento Bee has the same thing.  Talk radio was having a field day with these calculators over the past couple days, getting people to call in and disclose their statistics and telling them how much money they will owe.  This led to perverse complaints like the lady making $126,000 a year ranting about an $800 tax increase.

In my life, I have never seen a “spending cut calculator,” where someone good plug in the services they rely on, like how many school-age children they have, or how many roads they take to work, or how many police officers and firefighters serve their community, or what social services they or their families rely on, and how much they stand to lose in THAT equation.  Tax calculators show bias toward the gated community screamers on the right who see their money being piled away for nothing.  A spending cut calculator would actually show the impact to a much larger cross-section of society, putting far more people at risk than a below 1% hit to their bottom line.

But of course, people who are perceived to depend on state services probably don’t log on to the LA Times and the Sacramento Bee websites very often to calculate their tax burden.  In reality, we all depend on the state for roads and law enforcement and libraries and schools and county hospitals and on and on.  And in Los Angeles County, one in five residents – almost 2.2 million people – receive some form of public aid.  So wouldn’t it make sense to portray the real cost of spending cuts in the same way that tax increases are portrayed?

Contra Dan Walters, it is completely untrue that “liberal Web sites” are unilaterally condemning cuts to education and health & welfare spending.  We fully understand that a $42 billion dollar hole cannot be filled by revenue alone.  We certainly condemn corporate tax cuts at a time of massive deficits, or counter-productive actions like selling the lottery, which will produce net losses in the long-term.  But there is no question that the media mentality is to highlight the tax side of the equation over the spending side, and dramatically portray the tax increases – splashed across the front page – while relegating the spending cuts to further down the page.  It feeds the tax revolt and distorts the debate.  And it’s completely irresponsible.

Done for the Facebook reference: I may not get to 25.

1. One bit of schadenfreude in this is that Doug McIntyre of KABC and the comment section of the OC Register are flipping out over the heretics who broke with dogma and voted for tax increases.  McIntyre was particularly incensed about a Sacramento Bee editorial lauding Dave Cogdill as a “hero.”  He’s not a hero, he’s an extortionist, but McIntyre was calling him a guy who “took money out of your pocket to give to someone else.”  Typical Yacht Party jihadism.

2. It’s very clear to me that this got wrapped up today before the Yacht Party’s meeting in Sacramento, just blocks from the Capitol, so the spectacle of the crazies on the lawn demanding that old people eat cat food and public schools use the weeds out back for lunches be averted.

3. Joan Buchanan voted for the budget and then voluntarily cut her pay 10% in the name of shared sacrifice.  It’s a stunt, but it will probably go down well back home.

4. One loser in all of this is Zed Hollingsworth.  He got nothing in this budget for his newly-minted Minority Leadership, including no re-negotiation, and the next major talks may not be until summer 2010, at which point a repeal of 2/3 may be a fait accompli.  Meanwhile he’s already embarrassed himself by scheduling a $1,000-a-person fundraiser with fat cat lobbyists just HOURS after being made leader, one that generated such bad press he had to cancel it.

5. The big winner in all of this, perhaps the only one?  Twitter.  In a cavernous Capitol with a dearth of political reporting, the microblogging site was practically the only way to get quality information in real time.  It cannot replace in-depth analysis for a mass audience, but it was great for opinion leaders.

6. Though I’ve knocked him in the past, kudos to John Burton for recognizing the real problem and seeking to boldly fix it.  From an e-mail:

If the last 48 hours has proven nothing else, we can no longer allow Republicans to hold the people of California hostage and therefore dictate to the Democratic majority the terms under which the budget is passed.

California should join the 47 other states who don’t require a supermajority to pass the budget.

If I am elected as the next Chair of the California Democratic Party, I will make majority vote budget a top priority.

7. The federal stimulus is really helping out to reduce the pain in this budget.  It does appear that as much as $10 billion dollars will flow to California in this fiscal year, which would “trigger” some jiggering to the cuts (which would be reduced by $950 million) and the tax hikes (reduced by $1.8 billion).  It’s an open question whether or not all of them can be spent right away because of the cash crunch, but we’ll have to see how the markets react.

8. This is a baseline overview of the deal.  The cuts are going to be really, really bad: 10% across the board for education, huge cuts for public transit operations, health care, etc.  The new revenues basically fill in the loss of revenue from massive unemployment.  Essentially, this is the same level of spending as a decade ago, adjusted for inflation and COLA, despite greater need and higher population.  Not pretty.

9. Capitol Weekly reports that the cuts could hit Republican-leaning areas harder:

But data from the Legislative Analyst’s Office (LAO) suggests that cuts under the budget plan approved Thursda morning could likely hit many Republican areas hardest-while the tax burden is already falling more heavily on Democratic leaning counties.

According to the data distributed by Assembly Budget Committee chairwoman Noreen Evans, D-Santa Rosa, the majority of the counties using the most in state services are generally represented by Republicans. When this data on 2007-2008 state spending is compared to registration data from the Secretary of State’s office, it shows that seven out of the top 10 counties receiving state expenditures, measured per capita, have Republican registration majorities. Of the top 10 counties that contributed the most per capita tax dollars in 2006, eight have Democratic registration majorities.

“I hate to put this in partisan terms, but it’s the wealthier counties who are paying that are represented by Democrats,” Evans said. “Everybody needs to take a step back and look at what the data actually says.”

Food for thought.

10. Wrapping the week up into a nice little bow, on the day the deal was secured, they found Lance Armstrong’s bike.

11. There’s a big TV/film production credit in here.  While as a member of the industry I’m mindful of runaway production, I reject the “race to the bottom” that constant credits to get crews to shoot in California presume.  It’s corporate welfare, essentially.

12. The “single sales factor apportionment,” which is the massive business tax cut, doesn’t kick in until FY2011, predictably and conveniently after Gov. Schwarzenegger is out of office and it will be someone else’s problem to make up the revenue!  It’s almost like somebody planned it that way!

13. Of the items on the May ballot, only privatizing the lottery would really kill this whole thing and send everybody back to the bargaining table.  That would be $5 billion in lost projected revenue for this fiscal year.  But it’s a NET LOSS OVER TIME, which is what makes the provision so completely absurd.  Also, I’m not convinced anyone wants to buy our lottery, as revenue has shriveled in the past year.

14. Arnold still has $600 million in line-item vetoes to make to bring this into balance.  Hands up if you think they will impact the poor, the elderly, the blind, and others with almost no voice in Sacramento!

15. Karen Bass is vowing “additional Legislative actions before the start of the new fiscal year on July 1.”  So get ready for more fun!

There is no 16-25.

Just a thought or two on this whole mess while we wait for the Senate to reconvene.  While I didn’t think it was the best strategy to announce a deal and start voting on it before there was an actual deal in place (although the rumor that Dave Cox reneged on a handshake deal changes my perspective a bit), Darrell Steinberg seems to have backed into a strategy of playing Yacht Party obstruction out very publicly, so that the essential insanity of their anti-tax, sink-the-state agenda can be well-described by what’s left of political state media.  So George Skelton does the math and refutes the Yacht Party assertion that cutting spending alone can solve the budget crisis, and Dan Walters manages to describe the situation accurately.

And we all sit at our computers and type out our “even Dan Walters and George Skelton believe” articles, eternally hopeful that this is the corner-turning event, that the public will find the right people to blame for the sorry state of affairs, and punish them repeatedly forever more.  Only it’s wishful thinking.  First of all, I hate to break it, but nobody reads George Skelton and Dan Walters.  They are opinion leaders to about .001% of the electorate.  Second, there was another audience watching Sacramento this weekend, and they were the bondholders, who would be crazy to allow California to borrow one more red cent from them given the political fracturing (and this budget calls for 1.1 trillion red cents, or $11 billion dollars, to be borrowed).  Even if this passed tomorrow there would need to be lots of short-term debt floated to manage the cash crisis until new revenues actually reached state coffers, and with the bond rating the lowest in the country and the dysfunction being played out, I don’t see it happening.

The other point is that this is, let’s face it, a bad deal for Californians.  Among the sweeteners thrown in the deal to attract that elusive third Republican vote are a $10,000 tax break for home buyers to re-inflate the bubble and set the state economy up for an even bigger crash; weakened anti-pollution laws that will cost the state additional public health and environmental cleanup spending in the long-term; a potential budget cap that will make it impossible for public schools and social services to meet demand; and much more.  The tax changes, which are short-term except for a huge break to multinationals, tax things that we want to encourage in a downturn, work and consumption.  What the federal government is offering to spur demand and get the economy moving again is exactly what the state government will be cutting to balance the budget.  That’s not an argument to kill it, but it’s a reflection of reality.

So there will be at best a kind of zero-growth stasis, and at worst a further crumbling of the local economy, with shrunken revenues likely to require another round of this by summer.  Ultimately, the media cannot help the Democratic Party solve this problem.  The bill is coming due for 30 years of anti-tax zealotry and the belief that we can provide whatever citizens need without paying for it.  There isn’t a light at the end of the tunnel.  That some opinion leaders are coming around about 20 years to late doesn’t wash the blood from their hands.  And that the Democratic Party is finally thinking that they should maybe fight against the 2/3 requirement that has relegated them to a functional minority in Sacramento since is was instituted doesn’t absolve them for 30 years of inattention.

It gives me no pleasure to bear the bad news, but there’s no wake-up call on the horizon.  Even all 38 million Californians coming to the same “Hey, GOP is suxxor” conclusion at the same time doesn’t change structural realities.  Those must be fought for over years if not decades, and it is not defeatist to wonder whether it’s too late.

…I think Joe Matthews says it fairly well.

Both the Washington Post and the LA Times have stories today about the budget crises facing the states, where governors and legislatures have exhausted every gimmick and now must enact painful cuts that will work against the federal program to bring us out of the economic downturn.  The personal stories are significant:

Nevada resident Margaret Frye-Jackman, 71, was diagnosed in August with ovarian cancer. She had two rounds of chemotherapy at University Medical Center, the only public hospital in the Las Vegas area.

Soon after, she and her daughter heard the news on TV: The hospital’s outpatient oncology services were closing because of state Medicaid cuts. Treatment for Frye-Jackman and hundreds of other cancer patients was eliminated […]

“If this is what it’s like in Nevada, with cancer stuff closing, is it like that everywhere?” said Frye-Jackman’s daughter, Margaret Bakes, accompanying her mother to the doctor’s recently. “Are all the other states closing stuff too?”

The answer, in at least 39 states, is “yes” — or “soon.” With personal, sales and corporate income tax revenue plummeting, state governments — which recently trimmed their budgets to cover a cumulative $40.3-billion shortfall for the current fiscal year — are now watching in horror as a $47.4-billion gap opens for 2009.

And for fiscal year 2010, they will face a $84.3-billion hole, according to the National Conference of State Legislatures. The total shortfall through fiscal 2011 is estimated at $350 billion, according to the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington.

This article frames it as there being “no choice” but tough budget cuts or tax increases for states facing shortfalls, states that cannot print money or run budget deficits.  But that’s not entirely true.  There was a good deal of help being offered by the federal government in the House stimulus bill, which included $79 billion in state fiscal stabilization aid.  But among their other cuts, the Axis of Centrism cut that aid in half, by $40 billion dollars, and in so doing guaranteed additional layoffs to teachers and firefighters and cops and nurses and all sorts of other professions which rely on a state paycheck.

California law mandates that layoff notices to teachers be given out by March 15 for the next school year. Arnold Schwarzenegger is proposing $10 billion in education cuts. Republicans, which use our state’s rule requiring a 2/3 vote of the legislature to pass a budget, are demanding these cuts as the price of a tax increase to close the remaining $40 billion and ensure that the cuts aren’t bigger.

But all of us were hoping and expecting that the US Congress would come through with aid to stabilize state budgets, to help ameliorate the problem and save teacher jobs by providing stimulus money. It must be in the stimulus because, as I just noted, the layoff notices will go out within 5 weeks – there is no time to include it in another bill.

Now we are told that Ben Nelson and Susan Collins, two Republican Senators, have reached a deal to cut that education assistance and that the Senate is likely to accept it.

In short, what they have done is guarantee to my sister and to thousands like her that they will receive a pink slip within five weeks.

To call this fearmongering, as John Ensign did on Meet the Press today, just denies reality, par for the course for both Republicans and bipartisan fetishists like Claire McCaskill, who was at first giddy about cutting 600,000-700,000 jobs in the stimulus, and then passive-aggressively “defended” it by saying the alternative was no bill.

Claire McCaskill is now defending herself against Krugman on Twitter:

Just saw Krugman’s comments on reduction in recov act. Question for him. Would no stimulus act be better than one thats 800 B instead of 900.

She follows that up with

Compromise had to happen or we would NOT have 60 votes. Period.

And for further evidence of how much the bill is the same, she claims:

Original Senate bill was 60% appropriationss, 40%tax cuts. Compromise was 58, 42.Senate bill is 90% the same as House bill.

I’m glad that’s she expressing herself here, and that we’re able to somewhat have a dialogue. But I’m not sure how much in good faith it is. McCaskill began by stating how glad she was that they got a $100 billion cut out of the bill, that the “silly stuff” that Republicans didn’t like is now out. She then switches to a passive aggressive mode in defending the cuts – it’s basically the same bill and it wouldn’t have made it through the Senate – but glosses her own role in making the cuts. From the way she talks about the bill, wouldn’t she have been among those voting against the bill if the cuts hadn’t been made and new non-stimulative tax cuts hadn’t been added in?

McCaskill doesn’t want to admit her role in putting 600,000 Americans out of work on Friday, which will harm public safety and increase class sizes and shut down bus and rail lines and send the sick and uninsured looking in vain for treatment and a host of other inadvisable outcomes.  And there’s no rational economic reason for it, just that the Axis of Centrism choked on the price tag and had to compensate for the non-stimulative tax cuts the Senate tossed into the bill.  Massive job loss or increased property tax rates (as states compensate for the loss to education funds) is on McCaskill and Nelson and Collins and Spector’s hands.

The big question is what will come out of the House-Senate conference next week, whether the cuts, especially the state government relief, will be restored at the expense of things like the $70 billion dollar patch to the alternative minimum tax.  Larry Summers left that an open question on ABC this morning.

One of President Barack Obama’s top economic advisers forecast Sunday a difficult struggle with Congress over Senate cuts of $40 billion for state and local governments from the administration’s massive spending and tax cut package to stimulate the failing economy.

The $827 billion Senate version of the plan — designed to bring the economy out of the worst downward spiral since the Great Depression — was expected to pass the Senate on Tuesday. The House had already passed its $819 billion version of the measure.

And in the opening moments of This Week, an exchange between George Stephanopoulos and Larry Summers went like this:

STEPHANOPOULOS: …does that mean the President prefers the Senate version to the House version?

SUMMERS: No, the President feels that above all, we need a major program enacted very quickly that would create 3 to 4 million jobs. He believes we need to perfect it in every way we can.

If the cuts are restored, suddenly the sense of urgency works back in the direction of passing a bill more like the House version.  The Republican business lobby is urging passage.  I don’t think the moderates signed on to the bill could break ranks on the final vote if the changes in conference are limited to, say, swapping the state cuts for the AMT patch, combined with an assurance from the President that they will make that fix down the road.

The action needs to be entirely directed at the Speaker, who has spoken out against these cuts and ought to appoint conferees that will get the House version at least partially restored.  Being from California, she knows exactly how hard-hit the states are and what the consequences will be.  

If Republicans in Washington are offering a united front for neo-Hooverism and against any real effort to save the economy and prevent a Depression, Republicans out in the state who actually have to govern are doing anything but.  Arnold Schwarzenegger and 18 other Democratic and Republican governors have come out in support of the recovery package, leading Dan Walters to call him Keynesian.  Actually Arnold is just slightly less than insane, recognizing that without massive investment from the public sector, California will never be able to cover its budget deficit and revitalize its economy.

We support the objectives of ARRA and welcome the partnership it offers us as governors. The support for a temporary increase in the federal commitment for public education, health care (including cost control through initiatives such as health records IT), and for rebuilding our public infrastructure will create and preserve jobs today, and represents a sound investment in our long-term economic interests as well. We look forward to working with Congress and your Administration to advance an economic recovery package that puts federal dollars to work in our states in the quickest and most efficient manner as possible.

But this is being threatened in a big way.  Yesterday we learned that enough moderates were blanching at the cost of the package to threaten its passage.  President Obama met with the ringleaders of this neo-Hooverist movement, Sens. Ben Nelson and Susan Collins, and talked them part of the way off the ledge.  They were planning up to $200 billion in cuts, but now have pared that down to closer to $100 billion.  And in exchange for meaningless tax cuts and stupid initiatives like tax breaks for home and auto buyers (reinflating the bubble at great danger to the economy), they want to screw the states:

Sens. Ben Nelson (D-NE) and Susan Collins (R-ME) have come up with a list of about $100 billion in programs they want slashed from the stimulus package, according to a working draft of a staff paper outlining the cuts.

Among the biggest cuts under discussion: $24.8 billion in state stabilization money for education, which was intended to plug existing budget holes; $15 billion in state incentive grants for education; and $1.4 billion for the National Science Foundation, which is wracked by a porn-viewership flap. Pell Grants were the biggest program to survive the debate over cuts, with $13.9 billion staying intact.

Senate Democratic leaders are likely to bring this package up for a floor vote today, aiming to achieve a filibuster-proof margin in support of these cuts before pushing to pass the entire stimulus by day’s end. Hang onto your hats.

Ben Nelson is now backing away from this draft, and it’s no wonder.  This would cripple states like California facing bug budget deficits.  They didn’t want to release these cuts until now because states having to fire cops and firefighters and teachers is deeply unpopular.  But that’s what slashing the stabilization fund would do.  Given that budget money is fungible, that wouldn’t just affect education but practically everything that states do.

This is typical of an anti-democratic body like the Senate, where the relative power of a state with 400,000 residents like Wyoming and one with 38 million like California is the same.  California has a budget deficit bigger than the expenditures of 39 states and has all sorts of needs that could be filled by this package, creating hundreds of thousands of jobs and acting as a backbone for economic recovery.  But you have small-state neo-Hooverist idiots like Charles Grassley who think their job is to sink the economy, apparently:

The House bill, written by the committee chaired by Rep. Henry A. Waxman (D-Beverly Hills), gives considerably more money to states whose unemployment rates have increased significantly. That would put California, with a 9.3% jobless rate in December, in the top tier of recipients — along with New York, Florida and others.

The House “took an approach that recognizes that in the current recession, all states need some help, but some need more help than others,” Waxman said. “It is only fair that the hardest-hit states with high unemployment receive more assistance than those with low unemployment.”

But senators in some smaller states say the House provision would shortchange their constituents. “The legislation is biased to big states,” Sen. Charles E. Grassley (R-Iowa) argued.

That’s like saying the legislation is biased to people.

None of these people are explaining WHY the price tag has to shrink; it just does.  And if it needs to go down, there are useless, not-multiplier tax cuts for businesses and people that can afford new cars and homes that have little to no stimulative value.  They didn’t have to insert them in the first place.

It would be absolutely absurd to cut off states – who are not to blame for the financial meltdown, and who cannot deficit spend – in exchange for giving away more tax cuts, with the same failed philosophy that got us into this mess.  Now that these cuts are out in the open, there should be outrage.

Yesterday the California Majority Report reported that Assembly Democrats unfurled a scroll of all their budget cuts that they have adopted over just the past 5 years.

Assemblymember Noreen Evans, Chair of the Budget Committee, along with

Assemblymembers Saldana, De Leon, and Hayashi, unrolled a 150 foot long scroll listing all the budget cuts the Legislature has adopted since the 2003-2004 budget. The scroll stretched from the Capitol Rotunda to the Governor’s Office and displayed over 180 cuts totaling over $19 billion.

I’m pretty sure they didn’t do this because they were proud of the cuts.  They impact the least of society, and make it harder for those who are struggling at precisely the time they need to access basic services.

No, the Assembly Democrats did this in the hopes that bipartisan fetishists like George Skelton and Warren Olney and the Sacramento Bee editorial board and California Forward could maybe tell the truth for once about what is holding up the budget.  As the CBP noted yesterday, California is the only state in the entire nation with a 2/3 requirement for both the budget and tax increases.  The “solutions” they have therefore had to provide for past budget gaps are often gimmicky and simply delay problems into the future.  But the other consequence is that Democrats have OVER AND OVER AGAIN authorized often painful cuts to state services.  This is not a problem of “the legislature” – it’s a problem of one side willing (sometimes too willing) to compromise and the other unwilling to do so, protected by the dysfunctional laws of the state.

With the proposed federal stimulus bringing as much as $21 billion to the state over the next two years, there’s a lot of talk about a budget deal, and given the Feb. 1 deadline for action, that’s positive.  But the only specifics we’ve heard is another set of debilitating cuts, offered by Democrats as well as Republicans.  This is asymmetrical warfare, where Democrats act in the interests of the state and magical thinking Republicans whine and cry.  And nobody helps Californians sort it out.  This budget crisis is a media failure.  The blood is on their hands.