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What's Really Draining State Money?

To become less unstable, states are going to have to first become less unequal.

On July 1 last week, in state capitals across the United States, a new fiscal year began — amid nearly unprecedented fiscal chaos. In California, officials closed summer schools and made plans to pay bills with IOUs. In Arizona, state parks shut down for a day. In Illinois, drug treatment programs, facing a 72 percent funding cutback, were warning they may have to stop accepting new clients.

Overall, so far this year, 23 states have slashed programs for the elderly and disabled, 24 have axed aid to public schools, and 41 have sliced state worker jobs and benefits. And tens of billions in red ink still remain.

California income distributionHow could state budgets possibly spin so wildly out of kilter?

The current state budget crisis reflects, of course, the current recession. With economic activity down sharply, state tax revenues have fallen sharply, too. The already jobless aren’t paying state income tax. People worried about losing jobs are spending less. That’s lowering state sales tax collections.

But the back story to the current state budget crisis, the worst since the 1930s, goes deeper than the still deepening Great Recession. The recession has indeed shoved states over the fiscal edge. But the recession didn’t bring states to that edge. Inequality did. The states with the biggest budget gaps just happen to be, for the most part, the states with the widest gaps between the rich and everybody else.

Why should that be the case? Why should inequality inevitably end up generating chronic budget shortfalls that eventually devastate the programs that average families value?

To get at the answer, we need to go back to a time — the mid 20th century — when states were launching, not cutting, programs to help average families.

Back then, in the 1950s and 1960s, states from New York to California were energetically investing in the infrastructure of modern middle class life. They were building schools for baby boomers, opening brand-new campuses for public colleges and universities, expanding state park systems, widening old roads, and broadening library access.

The vast majority of Americans, back in the mid 20th century, relished these new and expanded public services. The United States, at mid century, had become a solidly middle class nation, and middle class people — and poor people who aspire to middle class status — need and value public services.

This dominating middle class presence in American life would, unfortunately, prove not particularly enduring. The United States would become, over the 20th century’s last quarter, increasingly unequal as Income and wealth began concentrating up ever higher on the economic ladder.

That would be bad news for public services. Rich people, generally speaking, don’t need — and don’t especially value — these services. The wealthy don’t send their kids to public schools. They don’t take books out of public libraries. They don’t use public transportation. They don’t spend time at public parks. Over time, not surprisingly, these wealthy tend to resent paying taxes to support the public services they don’t use.

Back in the mid 20th century, this resentment didn’t politically matter. In the considerably more equal United States that existed back then, the rich amounted to a marginal slice of the population pie, and the wealth at their disposal didn’t amount to all that much. The rich of the 1950s and 1960s simply didn’t have the resources necessary to dominate and distort the nation’s politics.

That would change. Over recent decades, with more and more income and wealth concentrating at the top, those uninterested in public services have had the resources to do more than grumble about taxes. They’ve been able to bankroll campaign after campaign, in state after state, to roll taxes back.

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