The Long Crisis

Posts Tagged ‘falling tax revenues’

State and local government job losses pose an unemployment time bomb for the private sector economy.

A think tank said on Thursday that in the declining economy falling tax revenues budget shortfalls pose a direct threat to millions of U.S. jobs, many in the private sector, as state and local governments lay off workers and cut spending on contracts and other business services sourced from the private sector.

State and local governments will have to somehow raise taxes and cut spending in the current and at least next two fiscal years to cover shortfalls totaling $469 billion, according to an Economic Policy Institute report.

White House adviser Jared Bernstein said the U.S. government must give states and cities $150 billion in direct budget relief to save between 1.1 million and 1.4 million jobs.

“Given the fragility of the economy, already high unemployment and the magnitude of the budget shortfalls, it is clear that we cannot afford inaction,” the report said, calling the gaps “a ticking time bomb for the economy.”

State governments as well as local governments have had to lay off workers. State governments have shed 26,000 jobs from October 2008 to last month, according to the Labor Department. California leads the 50 states in the severity of budget shortfalls and in employment cutbacks. The state already faces a 21 billion dollar shortfall for the current fiscal year after closing with a huge public outcry an even larger shortfall just a few months ago.

The US now faces an implosion in job creation that will be difficult to turn around. A vicious feedback loop between private sector job losses and government job losses is underway. As the private sector loses jobs tax revenues fall and local and state governments are forced to cut back on spending. As they cut back on spending, including the reduction of the number of government employees, there is a negative impact on the private sector. So around and around we go in the loop.

The next few years are going to be a very difficult time for the US economy. Until a complete restructuring occurs, with considerable downsizing a major part of such restructuring, living standards are very likely to continue to fall. There is no going back to what used to be. Efforts to do so, as are now underway by the Federal government, will prove to be futile.

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