The Corner

The Economy

It’s Tough to Expand State Government When Tax Revenue Is Way Down

It’s hard to predict exactly how the country’s political and economic landscapes will be changed by this pandemic. But we’re probably not going to see a massive expansion of government at the state level in the coming year or two.

Every state but Vermont has a balanced budget requirement (although the details of what spending counts as “the budget” and what counts as “balanced” vary from state to state). Thanks to the pandemic lockdown bringing vast swaths of the economy to a halt, state tax revenues are plummeting. Texas tax collections each month have been billions behind the totals for previous years. Florida’s tax revenue is $1.5 billion lower than expected for the year. Hawaii is estimating it’s down about a half-billion dollars so far.

Congress and the administration might work out a deal to send more money to the states, financed by borrowing . . . or they may not. If they do agree, the amount is unlikely to cover the entire shortfall.

So states will have much less tax revenue, constitutional balanced-budget requirements that are not easily repealed, and a limited amount of budgetary tricks to work around it. State governments could attempt to raise taxes, but that’s going to be unpopular and hurt state economies when they’re already struggling. Add it all up and it’s a tough set of circumstances for a dramatic expansion of government, no matter how ardently progressive the governor and state legislatures are.

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