THE BLOG
12/07/2010 03:12 pm ET Updated May 25, 2011

Apocalypse Now: What the Millionaire Tax Cut Costs New York

I am a fan of apocalyptic movies. In one of my favorites, The Day After Tomorrow, global warming causes a sudden ice age and a climatologist played by Dennis Quaid has to save his son, Jake Gyllenhaal, who has taken refuge in the main branch of the New York City public library on 42nd Street and 5th Avenue.

Apocalyptic visions have a long history dating at least from biblical days. A traditional African American spiritual reports, "God gave Noah the rainbow sign no more water but the fire next time."

But the next apocalypse may not require climate change or divine anger. It may simply be the result of a combination of Republican Party intransigence (stupidity) and Democratic Party spinelessness. I am referring to the consequences of the 2001 Bush tax cut for millionaires which will probably now be known as the Bush-Obama give away. It will help bankrupt state, county, and municipal governments and cause untold hardship.

Extending the Bush tax cuts for the wealthy will eventually produce a $700 billion federal budget deficit and dry up federal aid to local governments. Despite this, a proposal to let tax rates rise on January 1 on incomes over $200,000 for individuals and $250,000 for couples was defeated in the Senate by a vote of 53-36. That is 53 in favor of the tax raise and only 36 against. The math does not make sense to me either.

An alternative proposal offered by Democrats in the Senate would have limited the tax rise to millionaires, but that was also defeated when only 53 Senators voted in favor of the tax raise and an overwhelming 37 voted no. Wait, that does not make sense again.

It seems economic loonies financed by the mega-rich are in control of the Congressional agenda and President Obama and the Democrats are powerless to govern. Back in 2004, before the current economic crisis, the Center on Budget and Policy Priorities warned, "The Bush tax cuts have contributed to revenues dropping in 2004 to the lowest level as a share of the economy since 1950, and have been a major contributor to the dramatic shift from large projected budget surpluses to projected deficits as far as the eye can see." The Brookings Institute estimated "making the tax cuts permanent would reduce federal revenues by almost $1.8 trillion over 10 years... By 2014, the annual revenue loss would amount to $400 billion... almost the size of this year's federal budget deficit."

Nobel Prize winning economics Paul Krugman, who writes for the New York Times op-ed page, virtually begged Obama and the Democrats to resist what he termed Republican "blackmail." According to Krugman, "We're talking about almost $4 trillion in lost revenue just over the next decade; over the next 75 years, the revenue loss would be more than three times the entire projected Social Security shortfall. So giving in to Republican demands would mean risking a major fiscal crisis -- a crisis that could be resolved only by making savage cuts in federal spending."

If the millionaire tax cuts goes through, to offset the revenue losses in 2014 alone would require a 48 percent reduction in Social Security benefits, a 57 percent cut in Medicare benefits, or a 117 percent increase in corporate taxes. Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, warns the nation's fast-growing debt, will mean "long-term structural" economic problems for the United States.

Back in November 2009, New York State Governor David Paterson warned the state was on "the brink of a financial challenge of unprecedented magnitude in the history of this state." While Paterson's warnings were dire, the state's principal economic officer was even more pessimistic. The comptroller's office said the deficit for the remainder of the 2009-2010 fiscal year was at least $4.1 billion, and projected deficits of $7.8 billion and $15.7 billion in the next two years.

At that point New York and the other 49 states were bailed out by the American Recovery & Reinvestment Act, passed in February 2009, and more commonly known as the federal stimulus package. The vast majority of that money was used by the states to maintain Medicaid services and education funding in the face of steep drops in tax revenues. The stimulus funds helped plug between 30% and 40% of the $291 billion in budget gaps that states have faced over the past two years. But Recovery Act money will only cover 20% or less of the coming fiscal year's shortfalls and by fiscal 2012, most of the money will be gone. New York has less than $700 million left of the $2.7 billion it received to prop up education aid. Unfortunately the same Republicans demanding tax cuts for millionaires are refusing to refinance the stimulus package.

There is no other way the states can make up the deficits. Because of the recession, New York State sales and income tax revenues keep declining. Meanwhile in New York health care and pension costs are growing. Medical insurance costs for New York State employees will surge from $1.8 billion to $2.5 billion over the next three years. By 2015, pension costs will exceed $8 billion a year, compared with $2.6 billion last year. New York has promised more than $200 billion worth of health care benefits to its retirees but has set aside almost nothing to pay for them. Neither have the other states.

Projected budget cuts would decimate the City and State University and cause the lay-off of 14,800 teachers, 8,500 of them in New York City alone. The state university system has already increased resident undergraduate tuition by 14 percent but that is only the start.

In New York City, Mayor Michael Bloomberg will try to reduce the budget deficit with thousands of layoffs and massive budget cuts. He plans to close 20 fire departments at night, the lay-off of as many as 10,000 teachers, eliminate 350 civilian positions in the police department, 50 correction officers, 200 sanitation workers, approximately 200 Child Protective workers, and over 2,000 summer youth jobs, and reduce City funding for mental retardation programs, programs for the aging, libraries, and day care centers.

In New York City and New York State, and probably most of the other cities and states in this country, extending the millionaire tax cuts means the apocalypse will not wait until The Day After Tomorrow. We are looking at a different movie, Apocalypse Now.