by: Matt Welch

This weekend's Wall Street Journal, in the course of sketching out the fiscal contours of Stimulus II, makes that claim. Excerpt:

Remember how $200 billion in federal stimulus cash was supposed to save the states from fiscal calamity? Well, hold on to your paychecks, because a big story of 2010 will be how all that free money has set the states up for an even bigger mess this year and into the future.

The combined deficits of the states for 2010 and 2011 could hit $260 billion, according to a survey by the liberal Center on Budget and Policy Priorities. Ten states have a deficit, relative to the size of their expenditures, as bleak as that of near-bankrupt California. The Golden State starts the year another $6 billion in arrears despite a large income and sales tax hike last year. New York is literally down to its last dollar. Revenues are down, to be sure, but in several ways the stimulus has also made things worse.

How's that? Read on:

First, in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state's money.

A few governors, such as Mitch Daniels of Indiana and Rick Perry of Texas, had the foresight to turn down their share of the $7 billion for unemployment insurance, realizing that once the federal funds run out, benefits would be unpayable. "One of the smartest decisions we made," says Mr. Daniels. Many governors now probably wish they had done the same.

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed "maintenance of effort" spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

The upshot?

This is the opposite of what the White House and Congress claimed when they said the stimulus funds would prevent economically harmful state tax increases. In 2009, 10 states raised income or sales taxes, and another 15 introduced new fees on everything from beer to cellphone ringers to hunting and fishing. The states pocketed the federal money and raised taxes anyway.

Now, in an election year, Congress wants to pass another $100 billion aid package for ailing states to sustain the mess the first stimulus helped to create.

by Thomas Craig

President Obama is announcing that he is going to "ramp up" the stimulus spending over the next three months.  The improvement in consumer confidence seems to make the President think that his stimulus is working.  I happen to think that perhaps consumer confidence in the economy is improving because we no longer are subjected to the President of the United States coming on television every day and declaring that we are in the worst economic crisis since the Great Depression. (That of course was a lie.)  Its amazing how people can have a little more faith that hell has not frozen over when our elected Leaders stop screaming about how the sky is falling.  So far, we have spent $2.7 Trillion dollars.  That is only what we have spent, not even what we have PROMISED to spend.  This amount of debt is unbearable by any means.  Let's give the President the benefit of the doubt and say that the stimulus was a great idea and the economy is going to bounce back as a direct result of it.  My question now is, how do we go about paying all this money back?  I know the President is busy planning even more spending on his universal health care, but how do you suppose he is going to pay off the debt?  Well, let's look at our two options...

First, we do nothing and our currency inflates.  The influx of money into our system will cause prices to rise more and more.  Our salaries, of course, will not rise at the same level.  This brings us to a sharp inflation of the dollar and the economy will suffer because of it.  This will completely counter the stimulus measures that the President put into place and our economy will be even worse off than it originally was.  Let's also not forget the world's confidence in the dollar will crumble.  Some of our biggest Lenders will no longer want to gamble on our economy. (China, we're looking in your direction.)  We can sit by and watch this happen, or...

We can pay off the ridiculous debt we have accumulated.  Once again, let's assume the economy improves under the stimulus.  This is all borrowed money that we used and since ignoring it will lead to another economic crisis, we can take the initiative and pay off our debt.  We don't want to borrow even more money to pay off our previously borrowed money, so we do the only thing we can do raise the sufficient funds.  Raise taxes substantially.  (Or possibly set up a stand and sell pies to China.)  Nothing can turn an economy flaccid quicker than a hefty tax hike.  Unfortunetly, the President is going to have to do more than just tax the wealthiest five percent of the Country.  If you took all the money owned by the wealthiest 5%, every last penny of it, it still wouldn't be enough to pay off this debt.  We are going to have to have taxes raised on everyone, including businesses already struggling by the current economic crisis.

So as the title puts it, we have two options and neither looks fun.  It is a true lose-lose situation, brought to you by the Democrats.  The Reagan solution of lowering taxes significantly to stimulate the economy isn't looking so bad now, is it!  Always remember, "Change" is NOT always a good thing.