Loss in income taxes hurts states

Bank-repaid bailout funds provide opportunities for job creation.

Now that companies have started paying back their bailout loans with interest to the federal government, the bailout fund âÄî which originally stood at $700 billion âÄî now already has a balance of $200 billion. Some lawmakers have decided the economy needs additional stimulus, and they are now looking to spend some of this returned investment on a jobs bill. The idea is for the government to reinvest the funds rather than apply for new loans. Job loss has wreaked havoc on state budgets. Minnesota, for one, faces a $1.2 billion shortfall at the end of 2011, and that number could grow to $5.4 billion in the following biennium. A report by the state budget office says that a whopping 70 percent of this deficit is due to lost revenue from income taxes. Many states are worse off than Minnesota. Jobs programs can help solve these revenue shortfalls in the long term, and it is clear the federal government needs to do something quickly to encourage hiring. However, a federal effort on this front will not be as efficient as a facilitation of state efforts. StatesâÄô hands, meanwhile, are tied by their own spending crises. The federal government could achieve both short- and long-term solutions by first providing direct aid to the states to cover immediate budget shortfalls, and then by providing funds to states specifically to experiment with different job creation efforts as each state sees fit. These could include small business tax credits, infrastructure improvement and other local innovations. Empowering states will lead to more creative and effective solutions to budget shortfalls while putting our bailout money to good use.