What (Not) to Expect from Congress This Session

Congress is back, but don’t expect the players in this sad comedy to know or care much about how any pieces of legislation they pass will affect our states, regions or metros.
September 2013

I was thankful a month or so ago to hear one of my heroes, David McCullough, put the public’s—and my own—pessimism about the current state of politics and our nation’s future in some context. Asked about it, the Pulitzer Prize-winning historian responded with his trademark chuckle and noted that “Americans have always thought the country was in decline, even back in colonial times.”

That made me feel better. Almost 240 years ago, even those guys in the white wigs were worried. Yet a half century of modern polling on the subject shows the public to be more disillusioned than ever.

As we emerge from the steamy months of summer into what promises to be another silly season in Washington, those new lows in the polls are likely to be tested again because of approaching deadlines in the federal budget process, including another increase in the debt limit before the end of the year. So expect more cliffhangers, vacuous rhetoric and grandstanding. But don’t expect the players in this sad comedy to know or care much about how any pieces of legislation they pass will affect our states, regions or metros.

Some years ago, I occasionally would be asked after speeches why so many people who went to Congress from state and local positions seemed to forget where they had come from. The question was repeated often enough that I concocted an answer to test the audiences’ sense of humor. There are these small machines stationed at the main entrances to the House and Senate chambers, I said as seriously as I could, called “laser lobotomizers” that zap incoming freshman members, erasing all the accumulated wisdom earned in their previous careers. There was usually a moment of silence, then some giggles.

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I dropped that gag after a while. But there is truth in it. Most politicians care more about self-preservation, so if that means solving a difficult problem by passing it along to someone at another level of government, so be it. Congress is unlikely to ever treat subgovernments as much more than just another lobby and will likely show little interest in changing the process to learn more about them or collaborate with them. As Barry Anderson, the deputy director of the National Governors Association, who has considerable experience in fiscal and budgetary matters at the federal level, recently noted, he is used to telling governors that they will have to start doing more for themselves because “it ain’t gettin’ no better than this.”

The stakes are significant. The states on average depend on federal grants for almost a third of their revenues. Some of the reddest, like Alabama, Georgia, Kentucky, Missouri and Texas, ironically are among those most reliant on federal spending as a part of their economies. As Congress scours the tax code, the deductibility of state and local taxes and interest on tax-exempt municipal bonds are sure to be on the block. Of course, there also is the possibility that Congress will enact a new law forcing national companies involved in Internet sales to collect sales taxes for states, but relying on Congress to actually pass anything new is a dicey bet these days.

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Local governments also face myriad risks. Community Development Block Grants already have been slashed by $1 billion. But a bill approved by a House committee would reduce the remaining funds by half, to the lowest level since 1975, at a time when more than two-thirds of the metros in the country have not yet recovered the jobs lost during the recession.

A recent Government Accountability Office report was pessimistic. Tax revenues for states and localities, it predicted, “will remain below the 2007 historical high through 2060 due to the projected modest growth in receipts.” It concluded that the declining fiscal conditions mean that state and local governments will “need to make substantial policy changes to avoid growing fiscal imbalances in the future.”

So what will those policy changes be? Not surprisingly, the different approaches in the states will reflect the schism in Congress. The red states are more likely to lower income and corporate taxes, cut spending and refuse to cooperate with Obamacare. The blue states already have raised taxes to close budget gaps and invest in education and infrastructure, as well as set up their own health-care exchanges.

A number of red states—Kansas, Louisiana and Nebraska, among them—are trying to cut or eliminate income taxes by increasing sales taxes, with the idea that the switch will attract investment and eventually pay for itself. The problem is that sales taxes are regressive, slower to revive from downturns, and no longer track consumption since they rarely cover services.

Judging from past experience, it is the tax cutters who bear the burden of proof. Most prominently, George W. Bush passed the largest tax cut in U.S. history in 2003, but his term in office proved to be one of the least economically successful of any president since World War II.

Still, we need to keep an open mind. Washington is hopelessly mired in the muck, but states are not. We now are experiencing the highest concentration of partisan power in states since the 1940s, with one party in charge in 43 states. So lots of experiments are in the works. We’ll have to see how they turn out.

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