Headed to MI today for a talk on election outcomes and their implications for state policy (my host is the great MI League for Public Policy). As usual, much of my thinking comes from the kick-butt state policy group at CBPP.
First, it’s important to recognize that the majority of the electorate, particularly in the more populous states, voted for a) a role for government in meeting market failures—for WITT over YOYO, and b) fiscal policy that involved higher taxes. That last part is of course at the heart of our current cliff squabble, but state electoral results supported this view:
–FL rejected a TABOR amendment as well as caps on taxation
–NH rejected a “no-income-tax” amendment
–MI voters defeated an amendment requiring a two-thirds vote in to pass any tax increase.
–CA passes broad revenue measures to head off further education cuts
Not all, however, is sweetness and light at the state level, in no small part because state budgets and the programs to help economically vulnerable people are closely tied to the federal budget. In fact, 42% of fed outlays outside of Medicare, Social Security, defense, and interest payments are aid to states, cities, and towns. So, a key message to state policymakers concerned with preserving programs that support economically vulnerable people is beware of spending cuts that shift the burden of such support to the states.
For example, the figure below shows how deeply the House budget—the Ryan budget which, had the election outcome been different, could well have been the President’s budget—cuts this part of the federal budget. But, in fact, the other lines in the figure don’t exactly bode well either. Cutting this part of the budget—the non-defense discretionary, or NDD part—has for some weird reason become a point of pride of all parties. The WH itself brags that their budget takes NDD down to the lowest levels since the 1960s (as a share of GDP).
One way this is particularly problematic is in regards to the very important and potentially very beneficial state Medicaid expansion under the Affordable Care Act. Recall that the Supremes gave states permission to opt out if they want, and even though the Feds cover nearly all of the costs for years to come, if states see themselves ultimately bearing more of Medicaid’s costs, they’ll shy away from the extension.
Basically, state advocates need to keep their eyes on a pretty basic ball: beware of cost shifting. We are in for pretty intense fiscal negotiations for the next year (the cliff is just step one) and if they don’t protect safety net programs, including Medicaid, education, progressive taxation, low-income housing, and that part of the budget that helps pay for such things, then more of the costs will fall to the states themselves.
PS: A forthcoming important fight re the above issues will be to maintain the state and local tax deduction on your federal taxes. R’s will be gunning for this as it’s a bigger deal in states with income taxes and blue states. Getting rid of this deduction will put considerably more pressure on some states’ budgets.