Chapter 4 Blog- “What would it take to eliminate the Deficit? Here’s a List”

Link: http://money.cnn.com/2011/01/19/news/economy/texas_budget_deficit/index.htm

Summary:

This article is about how government overspending in Texas has caused a major deficit in Texas.  This year, Texas has spent close to $31 billion reaching a $27 billion deficit right now.  In order to fix this problem and get out of this deficit, major cuts in public social services must be made including education and Medicaid.  The Republican leaders chose not to raise taxes because they did not want a violent reaction from the citizens.  Also, Texas didn’t want to use the money projected from the rainy day fund, which has already collected $9.4 billion.  There were a 13% budget cuts in public education and a 7.6% drop in higher education support.  As a result there would be less funding for pre-K Early Start programs and four community colleges would be shut down to save some money.  Health and human services would also be cut by 25% including other public government services and approximately 9,300 government jobs would be removed.  There were cuts in public social services such as receiving meal deliveries and services.  Approximately 60,000 students would have no support from government for financial aid for college and there is less funding for defending homeless people in court duties.  The department that supervises parolees would be cut by 21%.  After the recent Great Recession, government revenue is starting to decline.  In this fiscal period, Texas would only generate $72 billion of revenue which is down from $87 billion years comparing from the last 2 years.  In order to cover for these cuts, Texas would have to spend an extra $12 billion in order to maintain its services.  In these next few years Texas will have less government support and you will expect less government spending in order to pay off this deficit.

Connection:

This article relates to government spending on public services and this article is a prime example of Wagner’s law of increasing state activity.  This article follows the theories of chapter 4 because the textbook states that the growth of government spending tends to rise and it is very common for governments to overspend and run into deficits.  Governments are constantly spending over their budget.  The largest component that makes up government spending is on public social services which include education system, healthcare system, public work programs, and pensions for the elderly.  Since the United States is a capitalist country it does not provide much public service unlike socialist countries.  This is why people in Texas don’t have to pay very high taxes.  Although they still pay some direct taxes such as income taxes but at a very low rate compared to Canada.  In the United States, they have a vertical equity because there is a huge gap between the rich and the poor and therefore the equity terms must have different terms that separate the rich and the poor.  For example, in the United States, they do not have a public medical care system.  Every time someone walks in to the doctor’s office, they have to pay each time.  In this situation it would be an ability-to-pay approach because when people pay the tax portion when going to the doctor’s office, they pay by how much they have to spend.  So in other words only people who can afford medical care is able to access United State’s healthcare system.  Therefore the government cannot afford to overspend its budget or else it would run into deficits like Texas.  This article also follows the theory of Wagner’s law of increasing state activity.  Wagner’s law of increasing state activity was developed by Adolph Wagener in 1883.  This states that in industrialized economies government spending can be expected to grow a t a faster rate than the total output of goods and services.  This is the exact same case in this article.  Wagner also stated when there are problems with the economy, the government will try to correct market imperfections and in financing large-capital projects.  In this article the government is making cuts in many social services trying to correct and fix this deficit.  The government is overspending too much and its spending grows faster than the revenue they are generating.  With low income from taxess and high expenditures, there is bound to be deficits.  This is the problem that governments must turn their attention to in the future so the same mistake of overspending won’t happen again.

Reflection:

When the government came up with the idea to cut back on government public services, I agreed with his idea because since residents in Texas do not pay a whole lot of tax, therefore I don’t think they should get those public services.  I don’t think people who work really hard in there jobs and people who do not contribute to the labour market should get the same amount of benefits because people who work for the benefits deserve it and while people who do nothing and doesn’t contribute anything should not deserve the same amount of benefits.  There is no way that the government can provide those services without gaining a lot of revenue such as taxes from the residents.  I believe that the government made the right choice.  I thought this choice was unique from other situations.  Usually the government would try to raise its tax so they can use the money to pay off its debts.  However I feel that the government had gone through some thorough reflection of the crisis and thought of the best way to handle this situation.  The government would think and predict ahead what the results would be if it raised the tax.  How would residents react to this change?  What would be the consequences?  I liked how the government of Texas had this all planned out before making its move.  The government thought that cutting social services would be the best thing to do in this case since residents aren’t paying high taxes that will cover the social services and increasing tax rates will cause a huge commotion and dissatisfaction among the citizens.