A deficit of wisdom from Congress

TERRIFIED of raising the national deficit - or at least terrified of being accused of raising it in an election year - congressional Democrats are pursuing policies that will increase the deficit even more.

Case in point: In a last-minute, politically motivated decision, the U.S. House of Representatives voted May 28 to strip $24 billion in Medicaid funding assistance that the states had been counting on when they drafted their budgets this year.

The Senate takes up the legislation this week. If the money isn't restored, Pennsylvania will have $850 million less to balance a state budget that is already $1.2 billion in the red.

As Gov. Rendell wrote to Pennsylvania's representatives in April, the unexpected drop in income would necessitate cutting payments to private hospitals, nursing homes and doctors; eliminating all state money for treating substance abuse and homelessness; cutting funding for domestic-violence prevention by a half and for child welfare by a quarter.

And the pain of cutting an estimated 20,000 jobs from the state budget won't be limited to the public employees who have become convenient,not-always-deserved punching bags during the Great Recession. The negative effects would ripple outward to include private companies that do work for the state, as well as the workers who make the goods or provide the services the unemployed won't be buying.

"It would actually kill everything the stimulus has done," Rendell told the New York Times this week. "It would be enormously destructive."

Here's what happened: As part of the American Reinvestment and Recovery Act (the stimulus), Congress increased the federal match of Medi-caid funding in order to cushion the effect of millions more people who need medical assistance during a recession. The increase originally was set to expire on Dec. 31, one quarter of the way through the 2011 fiscal year. So both houses of Congress approved a two-quarter extension of the funding and President Obama included it in his budget.

But in the past couple of months, more and more people have bought into the (wrongheaded) notion it's better to have high unemployment - and the ruined lives that go with it - than to increase the federal deficit. So in order to get Blue Dog (supposedly fiscally conservative) Democrats to sign on to a jobs bill, the Medicaid funding was dropped. (Republican members of Congress, of course, have unanimously opposed the stimulus, although Republican governors have taken the money for their states.)

The House's decision makes no sense economically - or politically, for that matter. On a national level, the Medicaid money represents less than a 1 percent increase in the deficit, but the effect of losing 900,000 jobs nationwide as states make cuts like Pennyslvania's (an estimate from the Center on Budget and Policy Priorities) would increase the budget far more. People who get laid off do not pay as much in state income taxes. They cut back on their purchases, which means they don't pay sales taxes. State revenue goes down, the deficit goes up, the state budget has to be cut some more, layoffs are increased and the spiral continues downward. When the economy is sick, it needs to be nursed back to health, even when the treatments prove expensive. There will be time (and means) to cut the deficit when people whose jobs were saved start buying things - and paying more in taxes.

In the short term, the Senate needs to restore the aid to states - and some U.S. House members from Pennsylvania need to recognize that now is not the time to subject the ailing economy to more pain. *