Democratic and Republican politicians, prestigious media commentators, and other prominent opinion leaders have recited the causes and grim consequences of large federal deficits with such incessant consistency that many citizens have come to accept their ominous story. The proposed cures, however, remain as perverse and unpopular as ever because social outlays are highly valued.
As governor of New York, David Paterson has struggled to bring down a $3.2 billion deficit. (Flickr/Long Island Business News)
In October 2007, two months before the onset of the worst U.S. recession since the Great Depression, Maryland's Democratic governor, Martin O'Malley, convened a special session of his state's Democrat-controlled General Assembly in a high-stakes effort to close an unexpectedly large $1.7 billion budgetary shortfall. A central component of O'Malley's proposal was converting the state's flat income tax of 4.75 percent to a progressive system with higher brackets of 6 percent and 6.5 percent for upper-income households. At the same time, he advocated a combination of tax hikes on corporate income, sales, tobacco, and vehicle titles, along with reductions in taxes on property and the incomes of lower earners.
President Ronald Reagan and Management and Budget Director David Stockman, Monday, Jan. 28, 1985 in Washington at a meeting on the deficit with business leaders from around the nation. (AP Photo/Dennis Cook)
President Ronald Reagan's budget director David Stockman coined the phrase "strategic deficit" to describe the usefulness of creating long-term budgetary shortfalls to undercut political support for governmental spending. As Stockman privately told Sen. Daniel Patrick Moynihan in 1981, accruing large deficits "gives you an argument for cutting back programs that really weren't desired and giving you an argument against establishing new programs you don't really want." Moreover, strategic deficits can enable opponents of public investments to sound compassionate -- "We can't steal from our children to pay for our short-term desires."
In July, Oregon's Democratic governor, Ted Kulongoski, and the state's Democratic legislature soaked the rich. They agreed on a budget that includes an income tax hike for married couples earning more than $250,000 a year and individuals making over $125,000. Corporations netting more than $250,000 annually also will pay higher taxes. At the same time, the Oregon legislature largely avoided the kind of draconian cuts to public services California approved at the insistence of its Republican governor, Arnold Schwarzenegger, even though Oregon has the second highest unemployment rate in the country and faced a huge budget gap of its own.
When President Barack Obama signed the $787 billion American Recovery and Reinvestment Act (ARRA) into law Feb. 17, he underscored how state governments would be largely responsible for implementing the legislation. Edward G. Rendell, the Democratic governor of Pennsylvania and chair of the National Governors Association, said at the time: "All of us, whether we supported the bill wholeheartedly or whether we had questions about it, intend to be good stewards of the money we spend.