In Praise of California Part 2
Why So Much Deficit Spending by the nation?
This is here for another reason. The big issue I saw in the last election was the deficit spending by government. Much of it was due to the 2017 Tax Breaks put in place by then President Donald Trump 10 years earlier. This was passed by Republicans using Reconciliation. To keep these tax breaks, the bill had to pay for itself. It did not.
The other factor impacting budgets and deficit spending was the pandemic itself. As you read this portion of the Executive Summary for New York’s Balance of Payments, the authors call out the $trillions of dollars spent by the government as relief spending during the Covid Pandemic.
Blaming Biden for both deficit spending issues is rather profound.
Executive Summary
Giving or Getting? New York’s Balance of Payments with the Federal Government (2024), Rockefeller Institute of Government, July 1, 2024
With the widespread distribution of vaccines and the most harrowing days of the pandemic behind us, the economic impact of the pandemic receded and the Federal spending that kept much of the economy afloat in 2020 and 2021 began to wind down. COVID-19 emergency relief spending fell to an estimated $391 billion in FFY 2022, a reduction of almost $1.4 trillion from 2021, based on preliminary data. In turn, the Federal budget deficit narrowed by $1.4 trillion in 2022, signaling a return to prepandemic fiscal trends, with New York accounting for a disproportionately high share of Federal receipts and a falling share of Federal expenditures.
Thus, FFY 2022 appears to represent the start of a return to business as usual for both US fiscal policy and New York’s net balance of payments position. Key findings from this year’s report include:
- With 2022 COVID-19-related spending only a fraction of what it was during the prior two years, New York’s dollar BOP has once again become more reflective of the state’s level of wealth, which is highly concentrated among a relatively small class of taxpayers, and therefore much less reflective of the needs of the majority of New Yorkers. As a result, New York has returned to its pre-pandemic position as a net subsidizer of other states.
- Based on preliminary data, New York posted a negative balance of payments of $19.4 billion, after two consecutive years of large positive BOPs. New York’s strong showing in 2020 and 2021 appears to have been a direct consequence of New York receiving a share of Federal emergency COVID-19 spending that was commensurate with its population size and need.
- With the worst of the pandemic in the rearview mirror and the economy on the mend, FFY 2022 saw an estimated 78 percent drop in COVID-19 emergency spending, an 8.0 percent decline in Federal expenditures, and a 21.0 percent increase in budgetary receipts. New York experienced a comparable 21.5 percent increase in tax receipts but saw a 74.5 percent decline in COVID-19 funding and an 18.8 percent decline in expenditures overall. As a result, New York’s BOP plummeted from a rank of fifth in 2020 and 2021 to 46th in 2022.
- The remaining of the five states with the least favorable dollar BOPs include California (-$72.0 billion), Massachusetts (-$30.0 billion), Washington (-$22.5 billion), and New Jersey (-$19.4 billion).
- The five states with the most favorable BOPs in 2022 were Virginia ($129.2 billion), Maryland ($71.6 billion), Kentucky ($65.4 billion), Ohio ($56.7 billion), and North Carolina ($52.7 billion).
- For every dollar New York sent to the Federal government, it received only $0.95 in Federal expenditures. This compares to an average of $1.40 received for every dollar contributed across the 50 states.
- Adjusting for population size, New York’s BOP dropped from a positive $7,750 in 2020 and $6,178 in 2021, to a negative $984 in 2022. The 2022 decline was associated with a deterioration in the state’s ranking from 34 and 39 in 2020 and 2021, respectively, to 42 in 2022. The bottom five states on a per capita basis were New Hampshire (-$2,049), New Jersey (-$2,091), Washington (-$2,894), Massachusetts (-$4,302), and Connecticut (-$4,909).
- The five states with the most favorable BOPs in 2022 on a per capita basis were Virginia ($14,888), Kentucky ($14,507), Alaska ($14,031), New Mexico ($13,009), and Maryland ($11,617).
- The national average per capita balance of payments for FFY 2022 is $2,799. New York received $3,783 less than the national average on a per capita basis. This difference, which defines the state’s excess burden, is the largest in the history of this analysis.
The extraordinary size and impact of Federal COVID-19 emergency spending lead us to examine New York’s evolving balance of payments position both with and without the approximately $3.7 trillion estimated to have been spent over three fiscal years. This analysis highlights the extent to which 2022 looks more like 2019 than either 2020 or 2021. Of the funding authorized under the six major COVID-19 emergency spending bills and spent in 2020 and 2021, New York received a percentage allocation above its population share, indicative of the state’s disproportionately severe level of need at the height of the pandemic. But with the winding down of pandemic-related spending, New York’s share of Federal expenditures is shrinking. Based on preliminary data, New York’s 2022 share of a declining pot of pandemic funding fell to just above its 5.9 percent population share, indicating a transition toward pre-pandemic distributional patterns.
The deficits were carried over from Trump’s 2017 Act known as the Tax Cuts and Jobs Act was supposed to pay for itself over a 10-year period. It did not, the same as the Bush tax acts. All of which have and are creating deficits. With the pandemic, people experienced a loss of income and businesses a loss of revenue as the nation shut down. What the above portion of this part of the report discusses is the deficits created from the funding of programs during the pandemic. If the Biden Administration along with Congress did not put programs into place during the pandemic, then the nation’s population would have been hurt financially. Coming out of the pandemic, the nation thrived and thrived too well, hence the Fed taking action.
To me this a case of making calculations that can be made even if the rationale for making them is shaky. My wife and I pay federal taxes. Wisconsin does not pay my federal taxes. A younger relative of mine qualified for certain federal special educational benefits, but his state had zero to do with it. Wealthy taxpayers in California clearly subsidize beneficiaries in Virginia, but so do wealthy Kentuckians and the relatively few poor folks in Connecticut are accepting a net positive BOP partly from South Dakotans. So while these calculations can be made from data insides lines on a map, those lines on the map have very little to do with what actually takes place.
sigh . . .
What states pay more than what they receive from the Federal Government? Wisconsin takes more than it puts in. Kentucky takes more than what it puts in. You are not looking at the charts of takers and payers.
That tells us that we have a moderately progressive tax system. It says nothing about which states have pro-business, high productivity economic policies which is what this post is about. You’re doing a class analysis worthy of Marx while this post is trying to rebut the typical Republican whine about profligate blue states somehow being a drag on the nation despite the simple fact that they subsidize the whiners. Elon Musk might not like California, but that’s the state that enabled SpaceX and Tesla, and that was because of its much maligned anti-business policies. It takes strong anti-business policies to create and nurture companies like Apple and Google.
Kaleberg:
And so few states . . . you are correct.