Don’t Reward Profligate States with Bailouts


International Liberty

One of the problems with state balanced budget requirements is that tax revenues are very sensitive to economic conditions.

Boom Years: When there’s robust economic growth, politicians collect unanticipated revenue because more people have good jobs and more businesses are earning money.

And what do politicians do when this happens? They spend a big chunk of that unanticipated tax revenue.

Bust Years: When there’s a recession and tax revenues unexpectedly decline, state politicians are in a tough position because they’ve made lots of promises to spend money, including for the extra spending that took place when the economy was growing.

And what do politicians do when this happens? They usually respond with a combination of spending cuts and tax increases.

This boom-bust budgeting is unwise for many reasons, but I don’t like it because it leads to a long-run expansion in the size of government (the spending increases…

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