Centrists Cut 600,000 Jobs From Stimulus and Decide to Bankrupt States While They are at It

Yesterday, I wrote about the compromise made on the Stimulus bill by Centrists in the US Senate that helped win the vote from 3 Republicans needed for the bill to pass.

John Nichols summed up the cuts that were made...

The bottom line is that, under the Senate plan:

* States will get less aid.

* Schools will get less help.

* Job creation programs will be less well funded.

* Preparations to combat potential public health disasters -- which could put the final nail in the economy's coffin -- will not be made.

In every sense, the Senate plan moves in the wrong direction.

At a time when smart economists are saying that a bigger, bolder stimulus plan is needed, Senate Democrats and a few moderate Republicans have agreed to a smaller, weaker initiative.

Paul Krugman wrote this morning that the cuts made as part of the compromise will be cutting approximately 600,000 jobs.

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

The cuts made by the Senate include $40 billion in State Fiscal Stabilization, $16 billion for School Construction, $7.5 billion of State Incentive Grants, and $5.8 billion for Health Prevention Activity.

The most troubling cut is the $40 billion in state fiscal stabilization. Iowa is looking at a very tight budget and we are hardly in the worst shape out there compared to other states.

This report by the Center of Budget and Policy Priorities was written BEFORE the cuts were made by the Senate and says the money is the Stimulus will help, but is not enough. Now that a chunk of that money has been cut.

The state fiscal situation is dire. Revenues are declining, and demand and need for services such as Medicaid is rising, as people lose income and jobs. State deficits are projected to equal $350 billion over the next 30 months. Because nearly all states are required to balance their budgets, states have begun to cut expenditures and raise taxes — both of which create a drag on the economy and threaten to counteract part of the intended federal economic stimulus.

The Senate economic recovery package recognizes this fact and includes substantial assistance for states. The amount of funding that would go to states to help them maintain current activities is approximately $160 billion to $165 billion — or roughly 45 percent of projected state deficits. Most of this money is in the form of increased Medicaid funding plus most of a “Fiscal Stabilization Fund.” This funding would likely be sufficient to deter many states from making the most severe spending cuts and to moderate state tax and fee increases. But states would still have very large gaps to close on their own.

On Meet the Press this morning, Rep. Barney Frank (D-MA), the chair of the House Financial Services Committee, said that these cuts will essentially lay off police officers and firefighters because States will have to cut their State budgets.

Give Sen. Grassley a call at 202-224-3744 and tell him to support more money for States and for schools in the Stimulus bill.

**Update**
Here's Barney Frank talking on Meet the Press...