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WSJ: States Slammed by Tax Shortfalls

Nice interactive chart on the Beige Book accompanies this realistic article on the precarious conditions of State finances:

"The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.

That gap -- identified Wednesday in a survey by the National Conference of State Legislatures -- is more than triple the size of the previous year's. It is the result of broad economic weakness at the state and local levels that could cause pain throughout this year and into 2010. Sales-tax collections, for example, have been hurt by the housing slump and high gasoline prices, which are prompting cutbacks in consumer spending. Personal income-tax collections have been hit by rising unemployment, while corporate income-tax collections have been eroded by falling profits...

Several state-university systems are being forced to raise tuition and tighten their belts...States are also reducing their payrolls and programs. Vermont is cutting about 400 jobs through attrition, while Tennessee is using buyouts and possibly layoffs to eliminate about 3,000 government jobs. Social services have been hit hard. Ten states have made targeted cuts in Medicaid, while three have cut contributions to the Temporary Assistance for Needy Families program."

Of course, it all comes back to Real Estate. Declining housing sales cuts into transfer taxes, Construction spending is down, and employment is way off. The cascading effect of less sales means fewer durable goods sales, home improvement expenditures, etc. As virtuous as the cycle was no the way up, its now that vicious on the way down.

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Click for interactive chart

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Source:
States Slammed by Tax Shortfalls
CONOR DOUGHERTY, AMY MERRICK and ANTON TROIANOVSKI
WSJ, July 24, 2008
http://online.wsj.com/article/SB121682740001077489.html

Thursday, July 24, 2008 | 06:00 AM | Permalink | Comments (21) | TrackBack (0)
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Comments

"Deficits don't matter" (VP Cheney)

The government can do whatever it wants.

If the government doesn't like the game being played then they can simply change the rules.

Brokers need access to cash, change the rules.
Need a loan to buy a brokerage firm, change the rules.
Government debt nearing the maximum amount, change the rules.
Foreclosures not going the way the government wants, change the rules.
Stock prices too low (short sellers), change the rules.
GSE's need money, change the rules.
Oil prices to high (futures market), change the rules.

I wouldn't be surprised to see government force the rating agencies (as if they are reliable anyways) to change the definition of AAA.

The only thing all this rule changing has done is delay the result. Invest accordingly.

Posted by: Owner Earnings | Jul 23, 2008 9:11:07 PM