This is probably not the headline you were expecting to see this morning. Normally, most of the states in America are engaged in partisan budget battles because they don’t have enough money. Since when do they have “too much” cash floating around? As Edward McCaffery points out in an op-ed piece for CNN, this is indeed an unusual situation, but it’s really happening. Many states are sitting on budget excesses caused by huge federal COVID relief payments that they clearly didn’t entirely need, a reopened, recovering economy, and, ironically, inflation. (When prices rise, states with a sales tax take in more revenue.) So the question now is… what will they do with it?
As America emerges from the deepest depths of our pandemic crisis, state governments find themselves with a happy problem: too much cash on hand. Aided by federal Covid-relief dollars and now facing surging revenues due both to a fast-growing economy and inflation, states have more money than they presently can spend. Mirabile dictu.
So, next comes the question of what politicians do when they have too much money, a rare fortuity indeed.
Some states are now simply giving the money back to taxpayers — simply, if loudly. Georgia’s Gov. Brian Kemp, facing a tough election year, this week very publicly signed a bill authorizing hundreds of dollars to be sent as income tax refunds to state residents who filed returns in 2020 and 2021, right around the time that they will be filing their federal taxes.
So one solution to this “problem” being adopted by the Governor of Georgia is to simply send out advance “refund” checks to taxpayers. And he’s not the only one jumping on the “free money” bandwagon with elections fast approaching. But even McCaffery points out that there is something “a little goofy” about taking money from taxpayers only to turn around and give part of it back to them. That’s putting it mildly if you ask me.
So what’s the alternative? According to the author, state governments can give the money back in a more “targeted” fashion by reducing the inflated prices of products and services that everyone needs. He suggests that gasoline and even bread (once the effects of the loss of Ukraine’s wheat harvest are fully felt) could be a more direct and effective method. Gavin Newsom is already attempting something along these lines in California with a plan to send everyone gas cards.
But as I pointed out in that column, these plans are very temporary in nature and don’t do anything to address the underlying causes of the price hikes. Also, the distribution is never handled in a fully meritorious fashion, resulting in the state government eventually picking winners and losers yet again. The only perceived “winners” from programs like these are the politicians who dole out the checks, which they will remind you of incessantly until election day.
With that in mind, here are a couple of suggestions that might allow the government to actually do something smart and productive for a change. First, at the federal level, perhaps Congress could take a look at all of these states hunting for ways to burn cash and realize that maybe they’ve been priming the pump a bit too much. It’s probably too late to try to claw any of that COVID relief money back now, but they could at least pause before they pull another trillion dollars of magical money off of the cash tree in the Rose Garden and set it on fire. (Which they are currently planning on doing.)
At the state level, a significant backlog of cash in the state government’s coffers could be put to very effective use without much effort. If the state already has a “rainy day fund” in place, dump all of the money in there. If not, create one. Then figure out how much of the budget you can cover with those funds and deliver tax relief to the citizens until it runs out so they can keep more of their own money. The citizens can best decide when and where to spend that extra cash based on their personal needs.
But no, I suppose that’s just crazy talk, right? And besides, doing something boring like that wouldn’t result in a photo op for governors who want to act like Santa Claus and be seen handing out checks.