Rebutting McConnell RE State Fiscal Relief

Senate Majority Leader Mitch McConnell (R-KY) is already invoking misplaced concerns about public debt to spike further lifelines to state and local governments, as I noted yesterday. Via Politico: “My view is: We just added another $500 billion to the national debt. Let’s see how things are working… We need to weigh our obligations vs. [states and cities], since they have taxing authorities as well, and how to divide up the responsibility.”

McConnell also invoked the “bail out” pejorative to deride further state fiscal relief, which is patently ridiculous. We don’t refer to checks and employment benefits as “bailing out” households, or PPP loans as “bailing out” small businesses, or emergency funding for hospitals as “bail outs,” and for good reason. All are lifelines to sectors of the economy that have seen incomes collapse (or demands for emergency care surge) because of this pandemic—just as state and local public finances are taking a beating through no fault of their own. No state could be expected to have a rainy day fund sufficient for the revenue shortfalls they will be facing, or be able to close said revenue shortfalls with tax rate hikes while economic activity remains deliberately paused.

But don’t take my word for it. Michael Leachman, Senior Director of State Fiscal Research with the Center on Budget and Policy Priorities (CBPP), hits back. Recommended reading:

Key Takeaways: “In total, we project $500 billion in state shortfalls over fiscal years 2020-2022. This figure doesn’t include the shortfalls many local governments will face… Sales and income taxes account for 70 percent of state tax revenue, but sales tax revenues have fallen through the floor because the places where people shop are closed. Income tax revenues also are collapsing due to mass layoffs and the stock market plunge. And state costs are up as states respond to the crisis and millions of newly jobless people turn to government assistance.”

Punchline: “strong fiscal relief for states is one of the most important and badly needed steps federal policymakers can take now. Senator McConnell’s misunderstandings and misrepresentations on this matter do nothing to alter that reality.” Seconded.

I would love to see Congress quickly enact the $500 billion in additional fiscal relief for state and local governments recently proposed by Senators Bill Cassidy (R-LA) and Bob Menendez (D-NJ), and requested by the chairs of the National Governors Associations.

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