State Tax Payments Rise But Several Still Face Ruin

The Commerce Department announced an improvement in new home sales for June. The figure seemed impressive compared to May, but it was still the second worst number on record.

The National Conference of State Legislatures said tax receipts will be up for the first time in two years. It hardly matters for several states. They have passed the point of no return unless they make unprecedented budget cuts which many legislators have resisted.The group said it believes that last year or next year will be the bottom for state deficits which will be followed by slow improvement. The Wall Street Journal points out that “the approaching end of federal stimulus funds could mean trouble ahead in this year’s budgets for many states.” State such as California, Michigan, and New York are up against such large deficits that they may be technically insolvent in the next year. The three face tens of billions of dollars in red ink each.

It has often been pointed out often that state deficits could be an Achilles Heel for the very modest national economic recovery. What is less often mentioned is that the by-product of the attempts of states to extricate themselves will be more layoffs of their workers which will swell the ranks of the unemployed and exacerbate pension shortfalls. States face a problem similar to the one the federal government does with Social Security and Medicare. There will not be enough money to go around in the next several years, and perhaps the 2010 to 2020 decade to cover the retirement and medical costs of the aged.

The old and very old have already seen much of their savings wiped out by the stock market crash of late 2008 and early 2009. Those who did not keep their holding for the market recovery may have lost 80% in many cases of their nest eggs. Home equity, which was a part of the retirement funding process, is almost gone as a source or retirement funds.

Very few policy makers and legislators want to say it in public, but the social safety nets of both the federal and state governments has frayed to the point of breaking. Many older Americans will be living near the poverty line in the 2020s.

Douglas A. McIntyre