That didn’t take long. The Biden Administration’s COVID-19 “relief bill” is already being challenged in court. The editors of the Wall Street Journal remark:
The $1.9 trillion bill marketed as Covid relief includes $350 billion in federal aid to states and localities. While states can use the money to increase spending, Congress decreed that they can’t use it to cut taxes. “A state or territory shall not use the funds,†the bill says, “to either directly or indirectly offset a reduction in the net tax revenue†from a new law or regulation.
Because the mandate applies to “indirect†revenue offsets, states are at risk of violating the law for any tax reduction “during the covered period,†which stretches through 2024. Ohio’s lawsuit by Attorney General Dave Yost argues that “this coercive offer of federal funds violates the Constitution.â€
Since money is fungible it’s darned hard to keep states accountable in this way. There are no prohibitions in the legislation, for example, on the states using the money to increase public employee pay or make public employee pension payments rather than borrowing money to do those things. That makes aid to state and local governments backdoor subsidies to public employee unions.
While that may not be the intention, it’s precious hard to avoid state and local governments from using the money that way.
David P. Goldman, writing in Asia Times, thinks we’re bound for stagflation, because our economy lacks the productive capacity to satisfy the demand generated by these gigantic spending bills.
https://asiatimes.com/2021/03/biden-sleepwalks-into-a-stagflation-nightmare/
The last time we went through stagflation, Volker killed the inflation part by raising interest rates to historic highs. The only home mortgages the banks would write were variable rate, and the rate reached 21% per annum. Thousands of families lost their homes.
What would happen to our federal spending if interest rates hit 21% again?