Exactly The Wrong Time For Spending Cuts

The country’s economy may be experiencing another stock market crash, and the housing bubble has been bursting, causing a housing market crash. And this is all happening before the expected recession hits and causes unemployment to increase. This is grim news indeed for state government budgets.
In particular California just experienced a sharp rise in unemployment. Saturday’s San Francisco Chronicle reports, California’s jobless rate up sharply,

California’s employment market took a sharp turn for the worse in December, the strongest sign to date that the state’s economy might be falling into recession.

The same say the San Diego Union Tribune reported, State’s jobless rate tops 6 percent,

Despite relatively strong job growth, the unemployment rate in California jumped above 6 percent last month, prompting Gov. Arnold Schwarzenegger to speed up construction projects that would result in the hiring of 5,000 new workers.

According to the story, the Governor is speeding up state construction work to help soften the recession’s blow by providing jobs, which provide income to people who are likely to rapidly circulate those funds to stores and other parts of the state’s economy.
Let me repeat that: the Governor is speeding up state government construction work, because it helps the economy. Shorter version: Government spending helps the economy.
So why does the Governor understand that this spending increase helps the state’s economy, but not understand that his 10% “across-the-board” spending cut will hurt the economy by cutting jobs and incomes at exactly the wrong time?
Obviously a cut in state spending is exactly the wrong thing to do at this time.
How do we get out of this mess? Part of the cause of the coming recession is a concentration of the country’s income and wealth into fewer and fewer hands at the top of the economic scale. And at the same time that more and more of the income is going to fewer and fewer people, they are paying lower and lower tax rates. War on Greed is asking for taxes to be increased on the “buyout industry.” Their statement,

Buyout industry executives with multi-million dollar incomes have been exploiting a tax loophole that allows them to pay a lesser tax percentage rate than most of the workers in the companies they manage. This is a disgrace!

Another example is hedge-fund managers have a tax loophole that lets them pay less in taxes than their maids. See this video:

My previous post titled, Do taxes drive California’s economy? concluded by saying,

The prosperity we have experienced comes from public investment and that comes from taxes. Cutting spending is like eating our seed corn. It is taxes that drive the economy. Spending cuts hurt us. Borrowing hurts us. It is time for people and companies that are getting wealthy off of our public investment to pay us back.

Perhaps it is time to start getting some of the money from where the money went. It is time to close tax loopholes, raise income taxes at the top, and raise corporate taxes. These are the biggest beneficiaries of our government’s spending – it’s why they’re doing so well!