What to do about the states’ poor finances

The 50 U.S. states each have a great many financial obligations, which they satisfy in one of several ways:

1. Income taxes
2. Sales taxes
3. Tolls and user fees
4. Borrowing
5. Lotteries
6. Cheating creditors by late or non-paying of debt

It all is an unnecessary routine that has been foisted not only on the states but on the counties, cities, and the other political subdivisions of America.

All of the above-noted sources of money tend to be regressive, with sales taxes, tolls, user fees, and lotteries being dramatically so.

But a solution to the insufficient, inefficient, regressive money collection is available, and even has been tested successfully.

Flush states bask in fiscal sunshine
By David A. Lieb Associated Press

JEFFERSON CITY, Mo. — Just a year ago, the financial future looked bleak for state governments as governors and lawmakers scrambled to cut spending amid the coronavirus recession that was projected to pummel revenue.

They laid off state workers, threatened big cuts to schools and warned about canceling or scaling back building projects, among other steps.

States, counties, and cities are responsible for financing education, grades K through 12. Why is this a state responsibility?

The reason may be partly historical, with the original colonies each being entities unto themselves, and the subsequent federal government not understanding the power and availability of Monetary Sovereignty.

Unlike our current, Monetarily Sovereign, federal government, the states do not have a sovereign currency, and therefore do not share the federal government’s unlimited ability to create a sovereign currency.

The states can, and regularly do, run short of the federal government’s sovereign currency: the U.S. dollar.

This ability by the federal government to create unlimited dollars has been hidden from the general public for almost the entire 245 years of America’s life.

But no longer.

Today, many of those same states are flush with cash, and lawmakers are passing budgets with record spending. Money is pouring into schools, social programs and infrastructure.

At the same time, many states are socking away billions of dollars in savings.

“It’s definitely safe to say that states are in a much better fiscal situation than they anticipated,” said Erica MacKellar, a fiscal analyst with the National Conference of State Legislatures.

Spending plans for the budget year that begins July 1 are up 10% or more in states spanning from Florida and Maryland to Colorado, Utah and Washington.

In Oklahoma, pandemic uncertainties last year prompted lawmakers to trim $1.3 billion from their anticipated general revenue. That resulted in across-the-board cuts for public education and most state services.

This year, the new budget is up nearly 18%. That includes money to reduce class sizes in kindergarten anid first grade, funding for a new children’s behavioral health center and new incentives for businesses to make movies in Oklahoma.

The Republican-led Legislature even set aside money to cut individual and corporate income tax ratesand expand tax credits for a school choice program.

“Last year: shaky foundation. This year: solid foundation,” said Republican state Sen. Roger Thompson, chairman of the chamber’s budget-writing committee.

Think of it. The states went from the impoverished cutting of education and building projects (roads, dams, schools, etc.) to spending for education, social programs, infrastructure, services, business incentives, along with tax cuts and savings.

How did this magic happen?

Many states experienced a similar turnaround. Fiscal analysts cite a variety of reasons.

The federal government poured billions of dollars into state coffers through a series of pandemic relief packages.

Federal aid also sent billions more to households and businesses that, in turn, pumped money into the economy.

Consumer spending rebounded to shore up sales tax revenue, and state income taxes were bolstered by a strong stock market and high-wage earners who kept working remotely while others were laid off.

The result is that states now face “a very promising fiscal and economic outlook over the next couple of years,” said Justin Theal, a state fiscal research officer at The Pew Charitable Trusts.

And there it is. The federal government is like the billionaire uncle; the states, counties, and cities are like his impoverished nieces and nephews.

In the last 12 months, the billionaire uncle finally opened his purse, and with no sacrifice on his part, took his nieces and nephews, and their children and grandchildren out of poverty.

The federal government has the unlimited ability to take the states and their residents out of unnecessary financial distress. As the former chairman of the Fed said:

 

The $212 billion budget enacted in New York is up almost 10% over the previous one.

Federal COVID-19 relief provided the bulk of that growth. But state spending still is up by 3.8% in the new budget, according to Gov. Andrew Cuomo’s administration.

New York’s bigger budget includes a $1.4 billion boost in basic aid for schoolsand a $1.3 billion plan to overhaul Penn Station.

Florida’s record $101.5 billion budget is up roughly 11%, with bonuses for teachers, police and firefighters, and new construction projects at schools and colleges.

Lawmakers decided they had money to spare, expanding sales tax breaks for school and hurricane supplies and creating a new tax-free week to buy museum and concert tickets and recreational gear for camping, fishing and surfing.

Florida is among several states that amplified their 2021-22 budgets with at least part of their share of a $195 billion state aid package from the recent American Rescue Plan Act signed by President Joe Biden.

 

All those worthwhile projects to improve the lives of Americans, and there is nothing to prevent them, except Congress and the President.

Many Republicans in Congress had criticized the Biden relief plan as excessive, especially in the amount of money going to state governments.

Why is it termed”excessive”?

One excuse often given by debt-scarers is that federal spending will cause inflation. In previous papers, we have shown that scarcity, not spending, is the root cause of all inflations.

Every inflation in history has been caused by a scarcity of key elements, most often food and/or energy.

 

 

 

Another excuse is that federal spending is “socialism.” It isn’t.

Socialism is government (or the nation as a whole) ownership and control over production, distribution, and exchange. Merely handing money to the states, would not be socialism. Not even close.

America does have some socialism. The development of the atomic bomb was socialism. The government owned and controlled every step. Federal benefits are not socialism.

Another concern is that the state governments will spend the money unwisely. But that concern merely expresses the desire for socialism, i.e. federal control.

Sen. Bob Rankin, a Republican member of the Legislature’s Joint Budget Committee, said he is concerned about how that additional $3.8 billion of federal aid will be spent.

“I’m afraid that we are spending money and making commitments that we will not be able to sustain once that one-time federal money goes away,” he said.

But rather than worry about the federal money going away, the politicians should be pushing for the federal money never to go away.

The fundamental purpose of government — the only reason why people create governments — is to protect and improve the lives of the people.

Governments are formed solely to be the servants of the people. We do not form any organization with the hope and intention that we will be ruled. Quite the opposite. We want to be served.

If ever a government stops protecting and improving the lives of the people, that government should be replaced with one that does.

The U.S. government has all the power and tools it needs in order to improve our lives. We do not want the dubious pleasure of being taxed. Rather we should want to tax the federal government.

After all, the federal government has no need for our tax dollars. It has infinite dollars at its disposal. It is we who can run short of dollars.

The people and the states, all being monetarily non-sovereign, should levy a per-capita tax on the federal government, to pay for our protection and our life improvement.

If the people do it, we might want to call it Social Security for All.

 

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:

1. Monetary Sovereignty describes money creation and destruction.
2. 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:

1. Eliminate FICA
2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
3. Social Security for all
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually. 
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. 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.

MONETARY SOVEREIGNTY