President Obama has proposed a $266 billion jobs bill that contains tax credits for small businesses that hire more workers, an increase in the federal highway fund to patch our crumbling infrastructure, and a short-term extension on the federal unemployment benefits. It’s a boost to the economy, but it’s not nearly enough to put 15 million Americans back to work.
Last year Congress approved $787 billion stimulus package, mostly in tax cuts and aid for “shovel-ready” projects at the state and local level. For most of us $787 billion sounds like an awful lot of money, but when you look closely, it was far less than it appeared.
Much of the stimulus was spent to “patch” the alternative minimum tax ($70 billion), which Congress routinely spends every year with or without a recession. Another $100 billion was appropriated for infrastructure projects that will take a decade to complete. More significantly, while the federal government was trying to expand the economy, state and local governments were forced to cut spending and raise taxes, fees, and tuition for public universities. In fiscal 2010, 48 state governments had budget deficits totaling $162 billion, and when you toss in the debt of municipalities, the total debt is well above $200 billion. According to the nonpartisan Congressional Budget Office when you net out the effect of state and local governments cutting programs and raising taxes, the real federal stimulus averaged only about $126 billion annually for 2009 and 2010. That’s less than 1% of our GDP.
What that means is that while the feds were trying to hire more road crews and contractors, states and municipalities were laying off cops and teachers. The feds were rowing in the direction of expanding the economy, while the states were rowing towards constricting the economy. Small wonder that 15 million Americans are still out of work, 25% of homes are worth less than the outstanding mortgage, and the number of bankruptcies, foreclosures, and failed banks are near record levels.
The President’s modest jobs bill is not going to work unless the federal government does something to relieve the burden on state and local government.
One way to give the economy a strong jolt would be for the federal government to open a line of credit to every state and locality. If the feds extended credit to state and local governments up to $1000 per resident at super-low interest for 30 years, why would any state or local politician refuse? We could strengthen our first-responders, improve our schools, lower tuition costs, and keep state and local taxes from rising. That would put more Americans to work, increase tax revenues, and eventually help to pay down the deficit.
I know what you’re thinking. The Republicans will accuse the Democrats of being tax-and-spend liberals. But if they do, the Republicans will be shouted down by the chorus of local and state government officials who do not want to be forced to make choices between raising taxes or cutting essential services.
We need jobs. But the President’s job bill will not succeed unless we have the federal, state and local governments all rowing in the same direction at once.

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