Bailout

We're going to be hearing a lot in coming months about the need for a federal bailout for states that have been impacted by COVID-19. It is true that some states have spent hundreds of millions on their direct response to the virus, and it is reasonable to ask the feds (i.e., taxpayers from other states) for help with that. It's also true that Team Apocalypse's efforts to shut down state economies resulted in a dramatic drop in sales tax revenue and enormous stress on state paid unemployment benefits. A targeted bailout might be justified there, but only for states that have made a real effort to re-open and restart their economy. If a state insists on remaining essentially closed (e.g., Michigan), any losses going forward are on their Governor and legislature, along with their residents.

Having said all of that, it appears that many blue states (e.g., NY, NJ, IL, CT, MA, CA) want the federal bailout not solely for COVID-related expenses but to cover profligate spending that has put them in a bad financial condition over the past few decades. The editors of the Wall Street Journal compare NY and FL:

Democrats want a $915 billion budget bailout for states and cities, and the leading lobbyist is New York Governor Andrew Cuomo. His main public antagonist on the subject is Florida Senator and former Governor Rick Scott. Both men were first elected Governor in 2010, so let’s do the math to consider which state has managed its economy and finances better over the last decade.

In 2010 New York’s population of 19.378 million was larger than Florida’s 18.8 million. By mid-2019 Florida had grown to 21.48 million, according to the Census Bureau, while New York had barely increased to 19.453 million. Yet Mr. Cuomo recently signed a budget for fiscal 2021 of $177 billion that is even bigger than last year’s, papering over what was a $6 billion deficit before the coronavirus. Florida’s budget for fiscal 2021, not yet signed by new Governor Ron DeSantis, is expected to be about $93 billion.

Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million—a $10,400 increase per new resident.

New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending.

Blue states have every right to spend as much as they want and to tax their citizens heavily until those citizens decide to vote with their feet and  leave (as is the case in NY). However, those same blue states have absolutely no right to ask taxpayers in other more fiscally responsible states to bail out profligate spending that occurred years or decades before COVID-19 came onto the scene and had absolutely nothing to do with the virus.