The framework for a tax agreement announced by President Obama this week is being described by some of the deal's backers as a second round of fiscal stimulus. But one of the striking things about the package is an approach to stimulus that wasn't even part of the talks: aid to strapped states. Federal funds provided by the Recovery Act helped stem layoffs of teachers, police officers, and firefighters, and are considered among the most efficient uses of stimulus dollars. But with state budgets still in crisis, those funds are about to run out. Meanwhile, support for much smaller subsidies to states is uncertain, and one of the business tax breaks in the new package — while likely to help create private-sector jobs — may actually worsen the state fiscal emergency in the short term.
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