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Battle lines are getting drawn up between the two parties on the next round of “stimulus” for the economy. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer are demanding as much as $1 trillion more in federal money to bail out state budgets. The blue states of California, Illinois, New Jersey and New York are lining up to be first at the trough. Senate Majority Leader Mitch McConnell has said there should be “no blue state bailout,” and he is right.
The whole idea of the federal government giving money to states is a foolish one. It is based on the fiscal illusion that the politicians in Washington magically have some multitrillion-dollar stash of money that it can pass out to businesses, mayors and governors. But this is an obvious fiction. The federal government doesn’t produce anything, which is why it is called “the swamp.” Congress and the White House can only “give” money to states by taking it from states and their people in the first place. Any money from the federal government is a redistribution of income from taxpayers in some states to governments in other states. For every state that is a winner, there is, necessarily, a state that is a loser.
So, which states will win, and which will lose? Gee, that is no mystery. We know the states that have been hardest hit are the blue states such as New York, of course, and California, Illinois and New Jersey. Except for Louisiana, the hardest-hit states are all the bluest of blue. We also know the states with the largest unfunded liabilities in their public pension programs are California, Illinois, New Jersey and so forth. These states handed out massive pension benefits that, in some cases, pay $100,000 or more per year to former government workers, which generally ranges from 30% to 50% — and in some cases, 100% — more than private sector workers (who pay the government workers’ salaries) get.
All told, the 50 states racked up nearly $5 trillion in unfunded pension liabilities for government employees, according to the American Legislative Exchange Council Center for State Fiscal Reform.
These states made their beds, even as fiscal conservatives howled in protest for years. Never should the federal government reward bad behavior.
It isn’t just bloated pensions with which blue states waste tens of billions of dollars.
The blue states that want the most money from Washington already spend and waste by far the most, and they are, for the most part, the richest states. Now they are asking to get subsidized by states such as Arizona and Utah, which spend the least.
There is zero evidence that states that spend the most have better services than states that spend the least. Few states have worse public services than New York. Just take a look at the dreadful public schools in New York City. Meanwhile, Tennessee, which has better state and local services than New York, spends one-half as much per person as does the Empire State. And it spends one-third as much as California, Illinois and New Jersey.
One example: California spends roughly twice as much per mile on road construction than Tennessee. Why?
So, instead of these blue states’ politicians coming to Washington begging for money, why don’t they ask the folks in Tennessee (or Arizona and Florida) how they can cut their government costs nearly in half and get better results for their residents? Maybe they could start with pension reform. Are you listening, Gov. J.B. Pritzker?
Our hearts ache for the residents of New York, Chicago, Boston and San Francisco, who have seen their cities paralyzed by the coronavirus. But those cities, too, spent far more than the cities in red states before the virus hit. Sorry, the residents of these cities are victims of fiscal incompetence assisted by the incompetence of politicians such as New York City Mayor Bill de Blasio.
It is why Republicans in Congress would be bonkers to let Pelosi take money from their states to subsidize the flabby and inefficient government services in blue-state America. The blue-state bailout is also the most regressive idea in modern times because it would tax residents in low-income states to pay for government services in high-income states. New York, California and Massachusetts are among the wealthiest states in terms of per capita income. How preposterous would it be for the residents of Arkansas or Mississippi to bail out Manhattan or Cambridge or Silicon Valley? Who would have thought that Pelosi would be such a fierce advocate for reallocating money from the poor to the rich?
There is a much better way to get money to states. Suspend the payroll tax until the end of the year, and let the 150 million workers in the states and the 30 million employers keep their money to spend and invest in their local communities.
Would you rather keep your money yourself or have mayors and governors spend it for you?
Stephen Moore is a senior fellow at the Heritage Foundation and an economic consultant with FreedomWorks. He is the co-author of “Trumponomics: Inside the America First Plan to Revive the American Economy.”
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