US budget crisis bites

Fight Racism! Fight Imperialism! 220 April/May 2011

In the United States, just as in Britain, a major attack is underway on public spending and services. State and Federal budgets are being cut. The capitalists are trying to throw the cost of the economic crisis onto the backs of the working class so the bankers and their friends can continue to rake in billions of dollars. Workers in Wisconsin and other states have begun the fightback. US correspondent STEVE PALMER reports.

Federal debt

Thanks to the bank bailout and the recession, the US Federal budget deficit has swollen tremendously. (See Table 1.) From $160.7bn (1.2% of GDP) in 2007, the deficit has grown to an estimated $1,645.1bn (10.9% of GDP) this year. By comparison, Portugal’s budget deficit reached 9.3% of GDP in 2009 while Spain’s hit 11.1%.

Total debt is expected to reach an estimated $15,459bn, which for the first time will exceed the annual GDP of the US economy, up from 64.4% of GDP in 2007. This incredible increase in the Federal debt in such a short space of time is due to wars, the financial crisis and recession: $85bn bailout of insurance giant AIG; $350bn for mortgage mills Fannie Mae and Freddie Mac; $700bn for the bloodsucking banksters; and a $787bn economic stimulus package. Borrowing further compounds the budget problem: thanks to increased borrowing and expected increases in interest rates, debt interest as a share of the Federal budget is projected to increase from 5.4% this year, to 12.6% in 2016.

The recession, and the financial crisis which precipitated it, are the symptoms of the over-accumulation of capital. The only way out of this is to attack the jobs and living standards of US workers. Real hourly earnings of workers have fallen over the last year, while productivity has grown by 1.9% over the same period and unemployment remains at over 9%. Profits have increased and the stock market has risen considerably. However, the budget deficit and the huge balance sheet of the Federal Reserve bank show that US capitalism has still not overcome the effects of the recession, so further attacks on workers are necessary.

The Federal budget is divided into two main parts: mandatory ($2.4 trillion this year) and discretionary ($1.4 trillion). Mandatory spending is on social security, the pension programme, Medicare and Medicaid (the health programmes for seniors and those in poverty), and the interest on Federal debt. These programmes, accounting for over 60% of the budget, must be cut to meet the needs of US capital, but cannot be cut without a really major political battle – watch the 2012 elections. Discretionary spending includes ‘Security’ (ie war and repression – $760bn, or over half of discretionary spending), and all other programmes – health, education, science, technology, agriculture etc.

Discretionary spending is where all this year’s reductions will have to come from, and Democrats and Republicans have competed with each other in proposing cuts, though the Republicans, thanks to the teabaggers, are now well ahead in the race. More than halfway through the current financial year, appropriations are still not approved, and the government is operating under a series of ‘continuing resolutions’ which temporarily provide finance while exacting cuts. Between them Democrats and Republicans are likely to agree to about $35-40bn in cuts. ‘Emergency funding’ – for imperialism’s emergencies in Iraq, Afghanistan and Libya – is exempt and ‘Security’ gets off lightly. The heaviest impact will be felt by programmes for the poor, for seniors, for children and for the environment.

The State budget crisis

The Federal government is not the only significant economic government entity: spending by States and local government is over 11% of GDP compared to 35% of GDP for Federal spending.

Thanks to the recession, tax and revenue receipts of State and local government are down, pushing budgets into the red. State tax collections are 11% below pre-recession levels. States have reached into ‘rainy day’ funds to try to cover the deficit, but these funds are nearly exhausted and most States are running budget deficits. Total budget shortfalls for some 44 States and the District of Columbia (DC) are projected to be $112bn for the fiscal year 2012. In addition Federal assistance for States, which helped avoid the worst budget cuts, will be largely gone by the end of the current fiscal year – down from $59bn to $6bn. California has a shortfall of $25.4bn, 29.3% of the 2011 budget; Texas has a $13.4bn deficit – 31.5%; New Jersey’s deficit is $10.5bn – 37.4%; New York has a $10.0bn deficit, 18.7% of its 2011 budget.

Unlike Federal government, almost every State has a balanced budget law, which prevents them from borrowing to cover deficits. Over 30 States have raised taxes, but at least 46 of the 50 States have cut services, especially to the most vulnerable. Because of the inability to borrow their way out, cuts at the State and local level are more severe than at the Federal level.

Cuts are concentrated on social and educational programmes: at least 43 States have cut services, including health care (29 States); services to seniors and the disabled (24 States and DC); K-12 (education from age 5 to 18 – 28 States and DC), higher education (37 States). Examples include:

• Arizona: cancellation of health coverage for 310,000 low-income childless adults and 47,000 low-income children, end of cash assistance for 10,000 poor families and elimination of the Department of Juvenile Corrections.

• California; $1.5bn cut in K-12 and community college funding, end of the welfare reform programme and Medicaid cuts.

• Hawaii: layoffs for 1,200 State workers, ending of financial assistance to poor seniors and people with disabilities.

• New York: $1.1bn cut in K-12 and $1bn cuts for health care providers.

• Mississippi: 9% cut in K-12 and a 12% cut to most agencies’ budgets.

The fightback

Since the most severe cuts are at State and local level, it is here that the fightback has been concentrated. All over the country, there have been protests and demonstrations. Most prominently, in Wisconsin, a State-wide struggle erupted against the Republican Governor’s attempt to end collective bargaining and drive unions out of the public sector. In addition Governor Walker wants to cut pension benefits and increase charges for health insurance. All this follows concessions on pay and health insurance which the unions have already made. Tens of thousands have protested outside the Madison State Capitol; Democratic politicians even left the State to try to prevent Republicans from having a quorum and so passing a bill which would legalise the attack on unions. Students and workers occupied the Capitol for days. Support for the workers has come from exempt public sector workers like firefighters and police, as well as unions who organise in the private sector.

This fight has been vital not just for the workers in Wisconsin, but for all workers in United States. In over 20 States, there are measures proposed to attack unionisation in one form or another. In Indiana, where there is a bill before the State Assembly to undermine unionisation of private sector workers, Democratic legislators too have fled to neighbouring States. In Ohio, where a similar bill to Wisconsin’s is before the legislature, 15,000 workers surrounded the State courthouse in Columbus, chanting ‘Kill the Bill!’, banging drums and playing the bagpipes.

Thanks to technical manoeuvring, Republicans in the Wisconsin legislature have passed their anti-union legislation, but it has been suspended by a judge, who ruled that the manner of its passing violated the State’s open meeting law. The Democratic senators have returned, hailed as heroes, and the Democratic Party and trade unions are channeling the workers’ anger away from direct action and into efforts to recall Republican legislators and the Governor. This is the danger: that the Democrats and trade unions will undermine the growing wave of workers’ struggles that are erupting as the cuts begin to bite, by trying to divert it into recall campaigns and legal challenges, while quietly negotiating health insurance and pension payment increases together with cuts in pay and jobs.

Table 1*







Budget Deficit $ billion

% of GDP

Total Federal debt – $billion

% of GDP

Statutory debt limit – $billion











































* Figures from 2012 Federal Budget, Historical Tables, Office of Management of the Budget. Tables 1.3, 7.1, 7.2, 7.3.


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