Washington, D.C. — Rainy day funds, also known as state stabilization funds, can be used to support progressive budgets and grow state economies, a new issue brief released today by the Center for American Progress says. The brief highlights how rainy day funds can help states use progressive taxes to make their tax systems fairer and make their overall fiscal systems tools for economic stabilization; support social services programs—such as public health, education, and care for the elderly and disabled—that not only support families affected by an economic downturn, but support economic growth as well; and promote responsible and transparent budgeting.
In the fallout of the Great Recession, many states cut important social service programs, along with programs that invest in the middle class, CAP’s brief notes: 31 states cut public health programs, 29 cut care for the elderly and disabled, 34 states cut K-12 education, and 43 states cut higher education resources. Rainy day funds can help bridge the budgetary gaps and help states avoid making cuts to safety net programs, which disproportionately affect a state’s most vulnerable populations.
“While the federal Recovery Act helped bridge the gap in state budget shortfalls caused by the Great Recession, many states still had to cut social service programs in ways that hampered a full recovery. As states prepare for economic hard times in the future, rainy day funds should go hand-in-hand with progressive tax systems to help states collect surplus revenues during good economic times that can be used to protect middle- and low-income families during downturns,” said Harry Stein, Director of Fiscal Policy at CAP and coauthor of the report.
CAP’s brief addresses three ways rainy day funds support progressive budgets and grow state economies: in conjunction with progressive taxes, they can create a fairer and more pro-growth tax system; they can ensure a reliable safety net for struggling families by protecting against deep cuts to vital social service programs; and they strengthen public trust in the government by promoting responsible and transparent budgeting which, in turn, increases public confidence in state government
Click here to read “How Rainy Day Funds Can Support Progressive Budgets to Grow State Economies” by Harry Stein and Laura Pontari.
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