The Democratic-led House passed another coronavirus-relief bill last week that would provide greater assistance to states and municipalities, and a handful of Republican lawmakers have called for more aid as well. GOP leaders, however, have resisted providing a lifeline.
Let’s go through their main objections — and why they’re misplaced.
First, the deficits-are-already-too-high argument. Republicans’ stated concerns about fiscal responsibility ring a little hollow, given the $2 trillion tax cut they passed when the economy was strong. They’re indefensible now that the economy is weak.
Economic experts — including those who have been much more principled in their budget hawkishness — have expressed support for robust federal spending. Expensive as further stimulus might be, they warn, it’s still likely to be cheaper than the alternative.
In a survey of high-profile economists called the IGM Economic Experts Panel,, most respondents agreed that spending substantially more now would “ultimately be less costly than a smaller program because it will better help to avoid long-term economic damage and promote a stronger recovery.”
Federal Reserve Chairman Jerome H. Powell likewise said in a speech last week that “additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.” Other Fed officials have echoed calls for more muscular fiscal support, including specifically through aid to states.
Second, the “been there, done that” objection. Republicans note that the federal government has already passed several rounds of stimulus, so they would prefer to “wait and see” how those measures perform before spending more. But here’s the thing: We’ve waited, and we’ve seen.
State finances already look atrocious.
In April, state and local governments slashed 981,000 jobs. That one-month decline was greater than all of the 750,000 state and local jobs lost in the several-year aftermath of the Great Recession a decade ago. More furloughs and layoffs have been announced in both Democratic and Republican strongholds.
Which brings me to the third and silliest objection: GOP leaders have suggested these fiscal crises are merely the problem of blue states that have mismanaged their money. Or as President Trump put it this month: “all the states that need help — they’re run by Democrats in every case.”
This is false.
Yes, some Democratic-led states (Illinois, New York) entered the pandemic on lousy fiscal footing. But this sin was hardly unique to blue states (hi, Kansas). If federal policymakers genuinely worry about “bailing out” states’ past bad behavior, they could design aid so that it addressed only shortfalls caused by the pandemic — by, for example, linking assistance to health and economic conditions. In any case, there is no way that even the most fiscally responsible states could have prepared for the fiscal crisis created by this pandemic.
Not long ago, deep-blue California had a budget surplus; now, thanks to declines in tax revenue and higher costs related to covid-19, it expects a deficit equal to 37 percent of its general-fund budget. That is 3½ times the balance in the state’s well-stocked rainy-day fund, according to the Center on Budget and Policy Priorities. Red states such as Arizona and Utah face debilitating fiscal crunches, too.
Nationwide, the expected revenue shortfall for state and local governments from now through the end of 2021 is nearly $900 billion, said Timothy J. Bartik, a senior economist with the Upjohn Institute for Employment Research. His calculation is based on the Congressional Budget Office’s latest unemployment projections, which show joblessness averaging 9.3 percent next year.
Absent more help from Washington, states and municipalities will sharply cut spending — just as they did after the Great Recession. This stunted the recovery then and is likely to do the same today. Public-spending cuts have knock-on effects throughout the private sector as governments eliminate jobs (teachers, police, firefighters), cut services and cancel contracts with private companies.
Given these expected “multiplier” effects, Bartik estimates that this level of state and local budget cuts would depress the overall U.S. economy by about 4 percent of gross domestic product.
In short: These budget crises will make it awfully hard for Trump and Republicans to fulfill their promises of gangbusters growth.
Whatever Trump’s claims, states — blue, red or purple — didn’t get themselves into this hole. But by withholding aid, Trump and his fellow Republicans can definitely make it harder for them to climb out.