Always a silver lining.
By Ryan McMaken
Unlike the federal government, state and local governments in America can’t just create money out of thin air. So when tax revenues go down, that money is simply not available to the state legislatures and city councils anymore. These governments either have to borrow the money or raise taxes and hope the tax hike itself doesn’t cause total revenue to fall.
The tax revenues in these states, cities, and counties are heavily dependent on economy activity. That is, sales must take place for sales tax to be collected. Income must be earned for state income taxes to be collected.
Thanks to government-coerced economic shutdowns—on top of the severe recession currently brewing—tax revenues are plummeting. And many governments are already expecting the hit to be larger than it was during the Great Recession. These realities will put pressure on politicians to relax their social distancing rules in the hope that local taxpayers can again earn money and generate sales taxes in their jurisdictions. A failure to do so will mean layoffs for government employees and large cuts to government budgets.
Politicians may not care about your household budget or whether you have a job. But they care deeply about their government budgets and jobs for their friends. This, perhaps more than anything else, will hasten moves by state and local politicians toward allowing the US economy to function again.