Wednesday, December 03, 2008

States and the Recession

In spite of federal efforts to stop it, the recession is continuing unabated. Unemployment is rising while prices and property values are falling. While the federal government has mismanagement options that enable it to spend in spite of decreased revenues, other levels of government do not have the same capabilities.

The states generally get funding from income taxes and sales taxes. Cities and counties generally get funding from property taxes and sales taxes. As unemployment rises, income tax revenues decline. As sales decrease, sales tax revenues decline. As property values plummet, property tax revenues decline.

Government officials find the prospect of cutting the budget abhorrent. That leaves the states in a quandary.

Some states are already turning to the federal government for bailout money. Not all agree, but the trend is there. Other states are looking for which taxes can be raised. Some are increasing their ticketing to increase revenue.

On the issue of raising taxes during a recession, Keynesians and Austrians agree it is a bad idea. States that do so are implementing bad economic programs, often in opposition to tax decreases implemented by the federal government.

A better solution would simply be for the states to do what everyone else has to do, and to adjust expenditures downward to match revenues.

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