The editors of the Wall Street Journal point out that the aid that the Biden Administration will be doling out to state governments will, in many cases, come on top of state revenue increases:
Governors—especially from Democratic states—have been pleading revenue poverty since the pandemic began. But as we approach the anniversary of Covid-19 in America, that tall tale is becoming more difficult to sell.
Even the left-tilting media are beginning to figure out what we’ve been reporting for some time. One of our sources is Dan Clifton, of Strategas Research Partners, who has been tracking state revenue trends and Covid relief from the beginning. His latest analysis shows that state revenues have been doing far better than advertised, especially states that have kept their economies largely open.
He estimates that a majority of the 50 states are seeing revenues arrive above their pre-Covid levels despite the 2020 economic damage. The big exceptions are states that had the most restrictive business lockdowns (New York), those that rely on sales taxes and have no income tax (Florida and Texas), and those that depend on travel and tourism (Nevada).
Add the $350 billion windfall that will soon flow to state and local governments from the $1.9 trillion Biden relief bill, and the states will be swimming in cash. Mr. Clifton projects that the states overall will have a combined budget surplus. The federal aid formula would provide an average of 20% of all state tax revenue.
If Illinois’s past is any gauge, additional revenue will be used to increase the pay of state employees, increase their number, or both. Since public employees are paid lavish pensions, that will increase future liabilities.
Unless the model of government is continued nationalization of state budgets, at some point that federal revenue will dry up and the states will be left with increased liabilities they have no way of addressing.
What’s the solution? Much narrower definitions of how the money can be used and stricter federal oversight than has been the case in decades.
I believe the model is the Federal government will keep its current course unless there are other side affects then asset inflation from large deficits and quantitative easing.
IMO large deficits, quantitative easing, and asset inflation is a risky strategy. It’s politically expedient but reckless.
Maybe it will all work out well but maybe some precipitating incident will induce a catastrophic loss of confidence. If the latter occurs and now that we know that recklessness is an impeachable offense and that leaving office is no bar to being tried for it, trying present and former officials for recklessness could become a full-time occupation.
I agree that there is a tradeoff between current pain vs future risk.
But its also a question of timing and priorities. My best guess (and its just looking at trendlines of interest rates for the past 40 years) suggests the current path is sustainable for at least 5 years, but likely not more then 15.
Given the Biden is 78 and has strongly hinted he is serving 1 term; Pelosi is 80 and has said this is her last term, and many key members of Congress are > 80; the “risks” will literally be someone else’s problem.
Yep. IBGYBG. The same thinking that precipitated the financial crisis.