It goes without saying that, in the wake of the health crisis, America is in need of fiscal and monetary support. The pandemic-related stimulus has been on the agenda for the better part of last year, and we remember the epic battles about its magnitude between Congress and Donald Trump when he was still president. Joe Biden and his team hold the cards now. 1.9 trillion seems to be the latest and final size of a package that is designed to bridge the American public into hopefully better times ahead.
The spending bill will, however, not just cover the individual cheques that will go to citizens and prop up their disposable incomes and by extension private consumption and the ailing economy. It will also include 350 billion that will go to state governments’ coffers for the purpose of plugging perceived tax revenue gaps caused by lockdowns and other restrictions imposed on private enterprises and their ability to run businesses and create taxable incomes.
To be sure, revenue poverty has predominantly been pleaded by Democratic state governors, as the WSJ pointed out in an
article last week. But as we approach the anniversary of Covid in America, “that tall tale is becoming more difficult to sell”, or so the authors put it. A source is being cited, Strategas Research Partners, that has been tracking state revenue trends and concluded that they have been doing far better than advertised.
Strategas estimates that a majority of the 50 states are seeing revenues arrive above their pre-Covid levels despite the 2020 carnage. Exceptions are New York due to its most restrictive business lockdown, Florida and Texas due to the fact that they don’t charge income tax, and Nevada due to its dependence on travel and tourism. In aggregate, however, the 350 billion windfalls will have states “swimming in cash”, as the federal formula provides an average of 20% of all state tax revenue.
California is particularly being pointed to as its tax revenues are already eclipsing pre-pandemic levels, thanks to the buoyant stock market and capital gains. But the report says that the sunny state will receive another 27 billion from the Biden package, or 17% of the state’s entire general fund revenue, on top of everything. Pennsylvania is also being mentioned with an influx of funds at 7.1 billion or 20% of its tax revenue. Clearly, there are beneficiaries who are simply in no need of support whatsoever.
What it tells us is that the system is flawed. There shouldn’t be any taxpayer money going to state budgets that are in no need of a handout whatsoever. It also tells us that stimulus measures need to be structured in a more dynamic fashion, as the crisis provides us with winners and losers, and the financial landscape changes at the snap of a finger. It will never give spendthrift politicians and re-election junkies an incentive to rein into their state expenditure and reform their governments.
A good part of the 350 billion could well be used for more direct support mechanisms that have a better effect bringing individuals and certain industries back from the crisis. Or the total package could be reduced and a compromise across the aisles in Congress more easily found, as a solid foundation for potentially much more difficult negotiations around the impending infrastructure and green spending. In times of crisis, do politicians serve up too much of a good thing…?
If we didn’t know better, it’d sound like a complete kitchen-sink approach by the Biden administration, a total reboot of the system as it were, when all is said and done in coming months and quarters. Well, I guess the US system would be the only one globally to be able to pull it off and afford it, but Biden needs to be wary… If it is this unprecedented move he’s willing to make to get things on track again, he’s only got one shot at it. He misses it, we are all toast.
