When you live in, or merely visit, the U.S., you not only are governed by U.S. laws, but you also deal with state, county and city/village laws.
The idea is that ultimately, we all exist locally, and by geography and custom, all localities are different.
State and local governments are tasked with many responsibilities — police, fire, education, streets, employment, poverty, courts, jails, etc. — and all of these are funded in whole or in part by local taxes.
The federal government, being Monetarily Sovereign, has the unlimited ability to create dollars at the touch of a computer key. It cannot run short of dollars.
Federal taxes do not fund federal spending. In fact, federal tax dollars are destroyed upon receipt by the U.S. Treasury.
(Federal taxes generally are paid from checking accounts, where the money comes out of the M1 money supply. The these M1 dollars are sent to the federal government, they disappear and cease to be part of any money supply measure. They are destroyed.
To pay its bills, the federal government creates new dollars, ad hoc.)
The state and local governments, being monetarily non-sovereign, can and do run short of dollars, yet at least nine states send net dollars to the federal government!
Because the federal government spends without relying on taxes, federal deficit spending adds growth dollars to the economy. State/local government spending, which relies on taxes, does not add any dollars to the economy.
Thus, from the standpoint of economic growth, federal spending is far more stimulative than local government spending.
For many years, my home state was Illinois. It perennially was and still is short of money. So are many of the towns and counties in Illinois.
Chicago Faces $1.2 Billion Budget Shortfall in 2021: Lightfoot
Heather Cherone | August 31, 2020
On top of that colossal shortfall, the city’s financial picture worsened significantly during the past three months because of an “economic catastrophe caused by the coronavirus pandemic,” Lightfoot said. The city’s budget for the current fiscal year is now $799 million in the red.
Is Illinois’s main financial problem COVID was an “economic catastrophe”?
Or, Is it because the crooked politicians are stealing so much? Well, we certainly have had our share of rascals. Wikipedia was kind enough to supply this list:
Illinois politicians convicted of crimes:
Roger Agpawa, Patricia Bailey, Edward J. Barrett, William Beavers, James E. Bish, Rod Blagojevich, Louis F. Capuzi, Isaac Carothers, Donald D. Carpentier, Willie Cochran, Frank Collin, G. Bradford Cook, Jerome Cosentino, Bill Cox, Rita Crundwell, John A. D’Arco Jr., James DeLeo, Bruce A. Farley, Keith Farnham, Morgan M. Finley, La Shawn Ford, H, John F. Harris, Dennis Hastert, Orville Hodge, Constance A. Howard, Douglas Huff, J, Jesse Jackson Jr., Sandi Jackson, Thomas E. Keane, Otto Kerner Jr., John McCandish King, Joe Kotlarz, James Laski, Terry Link, Betty Loren-Maltese, William Lorimer, M, William P. MacCracken Jr., Pat Marcy, Walter C. McAvoy, Robert F. McPartlin, Edward Nedza, Charles Panici, Sandra M. Pihos, Jacob Rehm, Mel Reynolds, Edward J. Rosewell, Dan Rostenkowski, Fred Roti, Andrew Russel, George Ryan, Martin Sandoval, Nick Sauer, Aaron Schock, Edward T. Scholl, William J. Scott, Derrick Smith, Roger Stanley, Ron Stephens, Arthur Swanson, Donne Trotter, Arenda Troutman, V, Edward Vrdolyak, Dan Walker, Jack E. Walker
Yes, whatever they stole came from the taxpayers. So, if not for these criminals, would Chicago be solvent?
Well, what about this:
MORE THAN 2,200 COOK COUNTY, IL WORKERS RECEIVE SALARIES OVER $100,000
Ted Dabrowski, John Klingner
A review of the county’s payroll database finds that more than 2,200 Cook County workers receive salaries over $100,000. For career county workers – those who’ll work for 30-plus years – that means pension benefits worth millions of dollars over the course of their retirements.
So is the problem due to high salaries and monster pension deals for Illinois government workers?
Yes, that may contribute to the problem. Or, is this the real problem:
After decades of historic mismanagement, Illinois is now grappling with $15 billion of unpaid bills and an unthinkable quarter-trillion dollars owed to public employees when they retire.
The budget crisis has forced Illinois to jack up property taxes so high that people are leaving in droves. Illinois may soon have to take the unprecedented step of cutting off sales of lottery tickets because the state won’t be able to pay winners.
by Matt Egan
Lotteries are supposed to make money for the state. How is it possible that Illinois’s lottery loses money?
So, is that the problem? Sheer mismanagement?
Well, what about this:
We’re being squeezed, Pritzker
Stop siphoning money away from towns and villages
Chicago Tribune, By Kevin Wallace
For the past decade, Springfield has been taking a substantial portion of revenue from Illinois municipalities, arguing that state government needs the money more than local taxpayers.
These funds can amount to up to 20% of a town’s operating budget.
In 2011, Springfield increased the state income tax and also started taking a larger share of the local pie — dropping the agreed-upon 10% it gives back to just 6.06%.
This year, Gov. J.B. Pritzker has proposed taking an additional $152 million to fill the state budget gap. But local mayors are facing their own budget challenges.
To make up for continued losses, towns will face the option of cutting services, laying off personnel, or raising property taxes. Making matters worse, keeping payments at current levels places a heavier burden on towns that can least afford it — those already hurting from weaker tax bases and sky-high property taxes.
So is there a problem with states taking too much from local taxpayers, yet still aren’t able to pay their own bills?
Or, perhaps this is part of the problem:
The states with the lowest net federal funding per resident are:
- New Jersey (-$2,368)
- Massachusetts (-$2,343)
- New York (-$1,792)
- North Dakota (-$720)
- Illinois (-$364)
- New Hampshire (-$234)
- Washington (-$184)
- Nebraska (-$164)
- Colorado (-$95)
Nine states send more dollars to the federal government than they receive from the federal government, which is ridiculous on the face of it.
But it gets worse. Much worse. The following is from the uber right-wing Washington Examiner:
Red states should revolt against the ‘blue state bailout’
by Stephen Moore | March 04, 2021
Congressional Democrats are a runaway train with a drunk-on-power conductor in House Speaker Nancy Pelosi. No matter how much evidence pours in that the economy doesn’t need $1.9 trillion more in debt spending, the Pelosi locomotive keeps crashing down the track toward the financial cliff.
Generations will have to pay for the joyride.
Can you imagine Trumpers’ pulses racing after reading that?
After we get past the hyperbole of “runaway train,” the “drunk on power,” the “locomotive” that keeps “crashing down the track,’ the “financial cliff” and the generations who will “pay for the joyride,” let’s see if we can find anything of substance.
There is the claim that the economy “doesn’t need $1.9 trillion more.” It’s the word, “need” that puzzles me. What does it mean?
Does it mean that all the financial problems facing us Americans are now solved and no further money would improve our lives? No, of course not.
Does it mean the federal government can’t afford to spend an additional $1.9 trillion? No, the federal government can afford anything.
Or, does it really mean:
One of the worst features of the bill is the “blue state bailout.”
Twenty-one Republican governors and one Democrat complained that the bill “punishes” states that did the right thing by keeping their economies and businesses open during the pandemic.
Hmmm. How are red states being “punished” by receiving money, whether or not the amount is less than blue states?
And, I don’t recall the red state complaints about them receiving more money from the federal government, year-after-year than do the blue states.
And as for doing “the right thing,” one could doubt that risking your citizens’ lives for the sake of business is “the right thing.”
But the real ignorance comes with Florida’s Gov. Desantis:
Florida Gov. Ron Desantis said the bill “loots” the red states to pay for Democratic governors who have locked down their economies.
In truth, his comment is no more wrong-headed than what’s coming from virtually all the other politicians. He claims that somehow the red states are paying for federal spending.
Let’s be clear. No one pays for federal spending, not the red and not the blue. The federal government creates all of its spending dollars from thin air.
Federal taxes pay for nothing. In fact, they are destroyed upon receipt. Those precious dollars you send to DC cease to exist the moment they are received. The federal government creates brand new dollars ad hoc, to pay all its bills.
Desantis has good reason to complain. Florida has a slightly higher population than New York, but New York gets $2,799 per person, or twice as much money as the $1,355 per person that Florida receives.
In other words: Floridians are paying for New York Gov. Andrew Cuomo’s incompetence.
That is precisely what is happening because the main factor in determining how much money each state gets is not its population but how high its unemployment rate has risen.
Aside from conveniently forgetting that year-after-year, New Yorkers send net dollars to the federal government while Floridians receive net dollars, the whining right also seems not to understand the purpose of unemployment compensation.
It’s to help people who need help, a concept that seems to be alien to those oh-so-compassionate conservatives.
And now comes the fact cherry-picking.
The governors’ joint statement declares: “A state’s ability to keep businesses open and people employed should not be a penalizing factor when distributing funds. If Congress is going to provide aid to states, it should be on an equitable population basis.”
Said another way, “A person having lost his job should not receive unemployment compensation.” That is known as right-wing logic.
Most red states have already balanced their budgets. So how will Republican governors use their free money?
WAIT! Now, after all the complaints, the Republicans acknowledge they are receiving “free money”??
Here’s a better idea: Rather than squander the money with more bureaucratic spending and the risk of inflating a financial bubble in their state budgets in the years ahead, devote every penny of these funds to finance tax reform and relief.
This phrase makes no sense: ” . . .inflating a financial bubble in their state budgets . . . ” Someone please explain it to me.
Five states are now examining eliminating their state income taxes. Those states are Mississippi, Nebraska, North Dakota, Utah, and West Virginia. Florida, Tennessee, and Texas already have.
Or could they, as a last resort, improve the lives of their residents? Improve their schools? Reduce hunger? Improve housing? Eliminate regressive sales taxes? Provide Medicare for All?
No, they would prefer to assist the rich by eliminating state income taxes, which are far less regressive.
It would be rough justice for the blue state bailout.
If Democrats take the red states’ money, Republican governors should make their states income-tax-free havens and steal the blue states’ families and businesses. The states without income taxes create twice as many jobs as the high-tax blue states.
First, Democrats are not taking “red states’ money.” The money is created by the federal government.
Second, why would this influence whether or not Republican governors make their states income-tax-free? Should receiving less money from the government encourage red states to reduce taxes!!? Makes no sense.
A lake should not take water from a desert. The well-fed should not take food from the starving, The rich should not take money from the poor.
And, the Monetarily Sovereign federal government should not take money from monetarily non-sovereign entities like the states, the counties, the villages, the businesses, or the people.
If you think California, Illinois, New Jersey, and New York are melting down now, wait until they have to compete against regions of the country in the South and the mountain states with no income taxes.
Will the last person in New York please turn out the lights?
Try to forgive the obvious joy right-winger Stephen Moore displays at visualizing left-wing Americans suffer. Apparently, for him, this is known as “patriotism,” “love of country,” and “concern for your fellow citizens.”
At the next Olympics, we hope he doesn’t cheer only for red-state Americans while booing those from blue states.
Unus pro omnibus, omnes pro uno
Economic growth is achieved when dollars are added to the economy. Federal deficit spending adds dollars to the economy. Local government spending does not.
A healthy economy requires the federal government to support, where possible, and not resent, state/local government expenses.
Rodger Malcolm Mitchell
Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.
3 thoughts on “Your town, county, or state is running short of money. It may not be your politicians’ fault.”
Taking the place of the Covid virus is the debt virus. Ironically, Covid is real and solvable by science; debt is unreal (legal) and insolvent by economic tools or methods. Perhaps the whole idea of money is an evolutionary mistake.
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Well-said, Rodger. Unfortunately, the inflation hawks are out again:
What would be your best rebuttal to the authors’ invocation of Sargent and Wallace, namely that raising interest rates to quash inflation would backfire because the “debt” is so high and higher interest rates mean higher interest payments and thus more new money created to service the “debt”?
I would counter that they are neglecting that raising interest rates would increase the value of the dollar by increasing the reward for holding dollars, as you have noted. What else would you add?
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1. Raising interest rates is the system the Fed has used for 80 years to fight inflation.
2. “More new money created” will, by formula, increase GDP. In the history of the universe, inflation never has been caused by federal deficit spending. It always is caused by shortages, most often shortages of energy or food. These shortages can be cured by additional federal spending to acquire, and/or to encourage the production of, the scarce items.
By the way, those who preach raising taxes orcutting spending as a means to fight inflation, may not realize it, but they in fact are preaching austerity, a guaranteed and proven disaster for any economy.
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