Should high-tax states such as California and New York get a bailout?
I explained last month why that would be a mistake, in large part because bailouts would reward states for irresponsible fiscal policy, similar to my argument that countries like Austria and the Netherlands shouldn’t be bullied into providing bailouts for Italy and Spain.
And I’ve shared two videos — here and here — for those who want more information about how bailouts encourage “moral hazard.” And this is true for banks as well as governments, consider TARP.
Today, though, I want to focus on some numbers that show what’s really causing fiscal problems in some states.
Adam Michel and David Ditch of the Heritage Foundation have generated some startling data on state government finances.
Instead of waiting on a handout from Washington, states should clear the way for a more robust economic recovery by addressing their unsustainable finances. States and local government spending has increased over the recent past… After adjusting for inflation and increases in population, state and local spending (in constant 2019 dollars) has grown from $5,596 per person in 2000 to $7,268 per person in 2019. That amounts to a 30% increase in the real cost of state and local government over just two decades, even without the thousands of dollars per person the federal government sends to states and localities through a wide variety of programs. …not all states spend equally. As of 2017, Florida, Georgia, and Arizona spent about $5,800 per person on state and local governments, but New York spent more than $11,700 per person.‘In Charts, How Big Blue States Outspend Red States’ by Adam Michel and David Ditch of the Heritage Foundation
The most important number is the above excerpt is that there’s been a 30 percent increase in per-capita state spending after adjusting for inflation.
That’s a very worrisome trend.
But not all states are created equal. Or, to be more precise, they’re not all equally profligate. Here’s the chart that starkly illustrates why some states are in trouble.
At the risk of understatement, California and New York have not complied with the Golden Rule for fiscal policy.
Needless to say, there’s no justification for the notion that taxpayers in well-run states such as Texas and Florida should be coerced into providing bailouts for politicians in poorly run states.
And now we have a compelling visual that settles the argument.