An Update on State Budget Cuts

With tax revenue still declining as a result of the recession and budget reserves largely drained, the vast majority of states have made spending cuts that hurt families and reduce necessary services. These cuts, in turn, have deepened states’ economic problems because families and businesses have less to spend. Federal recovery act dollars and funds raised from tax increases are greatly reducing the extent, severity, and economic impact of these cuts, but only to a point.

As most if not all sectors of the economy are cutting back, the federal government has increasingly become the lender and consumer of last resort. Yet, despite these efforts, numerous States have already announced further cutbacks in workforce, education, and health care next year. How long can the federal government continue to fill the increasing consumption void through stimulus programs? The greater the federal government's resolve to be the lender and consumer of last resort, the greater the pressure on the currency it uses to pay for these programs.

Source: cbpp.org