by Robert Kuttner

HOUSE AND Senate leaders are now deadlocked between a Republican House stimulus bill that is a shameless tax giveaway to large corporations and a Senate Democratic spending bill that is well intended but too paltry.

The country is facing a serious recession as well as increased national security needs. The safety net is frayed. Joblessness is rising, but unemployment insurance now covers fewer workers with stingier benefits.

Welfare is no longer an entitlement, and many mothers who have played by the new rules and taken jobs are being laid off with no prospect of public assistance. Since health insurance is tied to employment for most Americans, loss of job means loss of health coverage.

State budgets face alarming shortfalls, which could exceed $100 billion. Forty-nine of the 50 states are not allowed to run annual deficits (the exception is Vermont). So when recession strikes, states must lay off workers and cut program benefits just when more people depend on them. The alternative is to raise state taxes, which is not a good idea in a recession either.

California is facing a budget shortfall of $12.4 billion, and Governor Gray Davis is scrambling to cut state programs, many of them in human services. Florida faces a shortfall estimated at 15 percent. In Massachusetts, the gap is more than a billion dollars.

There is an obvious solution to this problem - emergency federal revenue sharing - but hardly anyone is talking about it. (An exception is Senator Edward Kennedy, whose proposed antirecession package of targeted aid goes beyond what the Senate Democratic leadership has proposed.)

Revenue sharing was a Richard Nixon innovation, part of his so-called New Federalism. The idea was to replace narrow federal programs with broad areas of federal assistance to states and to leave the details to governors.

Liberals did not especially like block grants. In general, the result was less targeted spending to the needy. But governors of both parties loved them. The only problem was that under the Reagan spending cuts, followed by additional Clinton-era cuts made in the name of budget balance, the available federal money dwindled.

This trend was masked to some extent by the boom years of the 1990s, which fattened state coffers. Now, however, states find themselves with additional demands and depleted funds.

You would think that emergency revenue sharing would be a political slam dunk. There are more Republican governors than Democrats, and incumbents facing election next year will be unpopular in a recession. And George W. Bush, a former governor with a brother who is governor of a large state, might seem sympathetic to an essentially conservative idea.

But the idea of emergency aid to states, which was first proposed by the liberal Economic Policy Institute, has barely gotten notice. The White House and congressional Republicans would rather share revenue with their corporate brethren, who would get the lion's share of the proposed House tax cut bill.

Liberals have also been unenthusiastic. Most Democrats would rather target money to specific needs such as increased funds for unemployment insurance and health benefits.

This is fine as far as it goes, but it doesn't go very far. Even the Democrats' stimulus bill proposes only about $40 billion, which could be dwarfed by the total state shortfall, not to mention the needs of newly jobless people.

The 50 governors, representing both parties, should be camped out on Congress's doorstep. But the National Governors' Association, a fairly toothless organization constrained by the need to operate by consensus, is lying low.

Ordinarily a war provides a measure of economic stimulus. But this war is costing just a billion dollars a month - a relative pittance in a $10 trillion economy.

After a lot of posturing, the Republican House and Democratic Senate will split their differences. They will cobble together a bill with tens of billions in tax cuts mostly for the wealthy and a similar amount of public spending, most of it devoted to the war effort, related outlays for intelligence, airport security and civil defense, relief for New York, and a grudging sum for human services and state budgets.

This approach is unbelievably shortsighted. The administration and its Republican allies will take the political blame when the recession deepens, and we will almost certainly need larger antirecession outlays next year.

George W. Bush may yet succeed at avenging his father's failure to vanquish America's enemies in the Middle East. But he might also recall that what undid the first President Bush was not stalemate with Iraq but a lingering recession at home.

Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Globe.

© Copyright 2001 Globe Newspaper Company

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