Give States Some FAT

After years of teaching numeracy to undergraduate college students, I’ve developed a few rules-of-thumb to try and help students stop reading around numbers and instead read into them.  One of the rules goes like this: “If somebody gives you an absolute number (like $112 billion), ask them for a relative number, like a percentage or ratio, or some other point of comparison.”

$112 billion is the total deficit of the 50 United States of America – that is, the gap between what all the states are spending and how much revenue they expect in the next fiscal year.  That’s a huge amount of money in most contexts.  It’s larger than the Gross Domestic Products (GDPs) of most of the 227 countries listed in the CIA Fact Book, for example.  But it’s only 6/10ths of 1 percent of the GDP of the U.S.

For want of $112 billion the nation’s classrooms are being stripped of teachers as students are piled on top of one another.  Potholes, bridges, and sewer systems can’t be fixed. Sick people can’t be treated. State and local government workers lose either their jobs or a chunk of their wages.  Firefighters get to fires 90 seconds (and who knows how many lives) later, and police forces adopt “innovative” rotations to make it appear they could actually protect people from crime and mayhem.  All for the lack of $112 billion, a tiny piece of the total amount of goods and services we produce each year.

We can spend $700 billion to bail out banks and insurance companies and to save what’s left of American auto companies, but we can’t find $112 billion to bail out state and local governments who are “broke” mostly because they happen to be where the rubber meets the road in our still lingering Great Recession.

To be fair, the Obama stimulus package included billions of dollars to help states meet part of their obligations in 2009, 2010, and the first half of 2011.  But though banks and auto companies are now doing fine, states are still suffering the effects of high unemployment, falling real wages, and higher gas prices.  In fact, as governors (Democrats a little and Republicans a lot) fire workers and cut the wages of those remaining, they are in danger of setting off a downward spiral that could “dip” us back into another round of Great Recession.  Meanwhile the Obama administration now looks on with empathetic indifference.  The states are on their own next year, as if Wisconsin and Ohio (and New York and California) no longer have a claim on what the President says is an “American belief that we’re all connected,”  while Afghanistan, Iraq, and Libya still have a claim on more than $150 billion in U.S. funds this coming year.

But how, given the budget-cutting mania currently obsessing the Beltway and fed by all sides of elite opinion, could the Feds find $112 billion to bail out the states?  The answer: a financial activities tax (FAT), which would assess every stock trade one-quarter of 1 percent (that’s one penny for every $4 of trading).  This tax was designed decades ago by Nobel Prize-winning economist James Tobin as a way to curb speculative, short-term investing that most economists agree distorts financial markets.  That is, a FAT would be directed at curbing the kind of financial behavior that was a primary cause of the near-collapse of the U.S. and world economy in 2008. Though a minuscule fee for each trade and though intended to slow the pace and volume of financial transactions, it would produce about $100 billion a year in government revenue.

A FAT is routinely included in most of the progressive budget plans that have been typically ignored by elite opinion and, therefore, by mainstream media.  Called a “financial speculation tax,” for example, it is included in the recently released “People’s Budget” of the  Congressional Progressive Caucus, an overall plan which reduces deficits and debt by more than either the House Republican kill-Medicare budget or President Obama’s counteroffer.  If progressive Democrats would pull the FAT out of those plans and put it forward as a stand-alone tax increase that would specifically raise funds to help state and local governments avoid slashing jobs, wages, and vital public services,  it could both have a significant economic impact and a huge political payoff.

A permanent FAT tax linked to a temporary bailout of the states should have a special appeal. $100 billion could go to the states in the first year to avoid layoffs of teachers, cops, and firefighters, and then $50 billion in the second year and $25 billion in the third to help states catch up with their deferred maintenance and to move ahead with “investments for the 21st  Century” in education and infrastructure.  The remaining money — $50 billion in the second year, $75 billion in the third, and a $100 billion a year forever after — would accumulate to a sizable cut in the federal government’s debt and deficit over the 10-year budgeting horizon typically used.

Progressive Democrats (especially in the states) sometimes ask why school children and teachers, victims of fire and crime as well as firefighters and cops should end up paying for what Wall Street caused.  It’s a good question.  But there’s no political payoff for Dems unless they have an answer.  A FAT-financed state bailout is such an answer.  It taxes a group who deserve corrective punishment.  It saves jobs and, though relatively small compared to what is needed, it helps stimulate economic growth which, of course, creates more jobs.  Politically, it could channel continuing public anger at “the banks” in a productive direction, while at the same time undermining Republican governors’ vicious attempt to rewrite the American social contract with their crisis-mongering about debts and deficits.

President Obama seems to think he can win reelection with an at-least-I’m-not-as-bad-as-the-Republicans approach, and he may be right.  But if the crisis in the states either dips us back into recession or simply assures a continuing slow-growth economy with historically high and grinding unemployment rates, just think how bad a Republican we could end up with in the White House in 2013.  Why take that risk? Why not a double-edged single-issue campaign to “save the states by giving them some FAT”?

Jack Metzgar, Chicago Center for Working-Class Studies

This entry was posted in Contributors, Issues, Jack Metzgar, The Working Class and the Economy, Working-class politics. Bookmark the permalink.

2 Responses to Give States Some FAT

  1. Stack says:

    I wish I had taken a college course from Jack Metzgar.


  2. Kelly Ohler says:

    With all the extreme events in the Middle East, and the media focus on silly Republican birther nonsense, it can be difficult to connect the dots.
    Anti-Union actions in Wisconsin, cuts in Medi-Care/Aid, Labor Murals taken down in Maine’s Department of Labor (and the rooms stripped of the names of labor leaders), almost 1000 legislative assaults on women’s rights in the past few months, bailouts for the rich, the creation of a surveillance police state, perpetual warmongering, all these things and more are not in place for the government to map out a reasonable plan of finance.
    The goal of Republicans (and that includes Obama, as no one today can seriously believe that someone who continues and extends the Bush-Cheney doctrines could ever be considered a Democrat? —the Mandatory purchase of health INSURANCE, originated with Republicans and the media hoodwinked the public “good” on that one) is made manifest with the Emergency Management plan in Michigan: .
    The Republican goal is to dismantle the rest of the Constitution they were not able to achieve under BushCheney, to dismantle people’s rights, to dismantle government, and bring it all under corporate control, according to what is being done in Michigan and elsewhere.
    If we are able to pay attention to all these things in total, we would not, like the writer, be perplexed at the “empathetic indifference of the Obama administration.”
    And we would not propose reasonable plans like FAT to address extremely unreasonable actions of the present governments. They will not be heard, they will n ot be acted upon, until reasonable people can undo the travesties already perpetuated on us, and on the people’s of other countries.


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