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Could Economy Slip Back into Recession because of Budget Cuts?

Medicare CutsCongress has recently been taking steps backwards away from sending more financial aid to economically battered states, which puts billions of dollars that California and other states were depending on to balance their budgets.

California was looking forward to receiving nearly $2 billion in federal aid, which was allocated to help bring California out of the red.

All together, the federal government was to set aside $24 billion to go towards helping states balance their budgets.  Most of that money would have been applied to cover medical care.  Now, Democratic leads in the House of Representatives have taken that money out of legislation because of election-season jitters.

It appears that Washington is now being driven by the deficit.  A bigger problem lies in the fact that the economy could slip back into a recession because of financial cuts to states and local economies.

In California, the welfare program is being considered to be eliminated, and state-subsidized day care would be cut for hundreds of thousands of low-income children.  School spending would be froze, and numerous other cuts would follow, to help close the $19.1 billion budget gap.  If California does not get the federal assistance, these cuts plus more drastic proposals would be on table.

Nearly every single governor in the country is trying to persuade the Senate to provide the assistance.  However, the Democrats, who have the majority in Congress, are facing resistance to more spending from their own more conservative members of their party because of upcoming challenging re-elections.  Meanwhile, in this year's mid-term election campaigns, the Republicans are noting that the federal budget deficit could reach $1.5 trillion.

There are 30 states that are counting on additional Medicaid funding for their budgets.  This funding was originally provided in last year's economic stimulus bill, but only through the end of 2010.  While unemployment is still very high, governors from both the Democratic and Republican parties have been seeking to extend the funding through the middle of next year.

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