HEROES: Should Congress bail out states?
Many states are demanding more money from the federal government to deal with the COVID-19 situation.
But providing even more bailout money to states would mean inappropriately supporting years of poor fiscal management and incentivizing unnecessary government lockdowns.
Ultimately, bailing out states means less money in our pockets at a time when many of us are struggling financially — and fewer opportunities for entrepreneurs to help conquer the effects of the novel coronavirus.
Democrats in the U.S. House of Representatives recently passed the HEROES Act to spend more than $3 trillion in response to the COVID-based recession, with $1 trillion of that going to bailout states. And now the Republicans and the White House seem to be coalescing around a bill of about $1 trillion without state bailouts.
While we are discussing such large numbers, recall that the U.S. is $26 trillion in debt (roughly $80,000 owed by every American) or 130 percent of economic output, which is the highest since at least the Great Depression. Also, the federal government is likely to run at least a record of a $4 trillion deficit this fiscal year (about $10,000 per person).
In short, the government has no money to spend, and the House Democrats want to spend $3 trillion more that the federal government doesn’t have. And $1 trillion would be handed out to state and local governments, rewarding those who mismanaged their finances and the COVID situation.
Not only is this act a bailout — which is bad enough — but it far exceeds what’s needed.
According to the Tax Foundation, state governments are expected to have a tax receipts shortfall over this year and the next of at least $121 billion compared with a 2019 baseline due to the COVID-related recession.
In March, the CARES Act dedicated $150 billion to cover this potential shortfall. Total resources dedicated to state and local governments has been $1 trillion so far.
Fortunately, there are practical, responsible steps that states can take to weather this storm and to overcome potential shortfalls.
First, states must end lockdowns that force employers to close their business and workers to lose their jobs. Reopening society would revitalize the human ingenuity of entrepreneurs to not only better deal with the COVID situation through trial and error rather than one-size-fits-all policies but to also rehire workers. This would have the secondary effect of increasing tax receipts.
Second, states must restrain their spending, which is always and everywhere the primary source of budget shortfalls. This can be done by eliminating wasteful expenditures and freezing inflation-adjusted per capita spending to keep it within the means of taxpayers. Doing so will help the government from growing excessively and putting a higher tax burden on taxpayers, especially when they’re already struggling.
The other things that would provide a pro-growth environment to help Americans deal with this unfortunate health situation is for states to not raise taxes or regulations, and in fact, they should consider cutting them.
We can make it through this crisis without sacrificing the future. State and local leaders must make the hard choices for the good of their communities, and we must support and encourage them to be good stewards with our money.
And Congress should scrap their current strategy, which hasn’t worked well, and instead consider the Workplace Recovery Act to keep struggling businesses operating so employers and workers don’t lose their livelihoods while limiting excessive government spending.
By safely ending the lockdowns and responsibly budgeting our tax dollars, governments at all levels can help restore opportunities for us to pursue our hopes and dreams. Bailouts would only achieve the opposite.
Vance Ginn, Ph.D., is Chief Economist at the Texas Public Policy Foundation in Austin, Texas. He is the former Associate Director for Economic Policy of the Office of Management and Budget at the Executive Office of the President.
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