Monday, June 01, 2020

How Will Cities And States Dig Themselves Out Of Their Deepening Financial Holes?

turcopelier |  The governments of the really big cities of the US were in fiscal trouble BEFORE the COVID crisis.  The Democratic Party has long governed these places and throughout that period they made promises with regard to disbursements that far exceeded expected revenues.  As an example, pensions for city employees were inflated to incredible levels.  The NY City Police Department has 40,000 employees, etc., etc.  With the rise in these obligations came massive growth in state and local taxes in these big city localities.

The near elimination of deductions for State and Local Taxes (SALT) in the Federal Income tax after 2017 was a mighty blow to rich people resident in the big cities.  The loss of the SALT deduction in federal income taxes has greatly increased the departure of the moneyed class from these places. Where are they going?  Since the US is a federal republic in which each state has its own law code and tax system, the rich can flee to states where there are much lower taxes.  Texas,  and Florida are examples.

As these people and their money depart, the tax base shrinks proportionately but the expenditures have not shrunk thus far.  The governments of these cities have not been able to face the needed abandonment of the welfare and big government models that they have built.

And now, pilgrims we have the phenomenon of COVID-19 and the devastation wrought by government forced closures upon the many thousands of small businesses that lined the streets of these cities ante-COVID.

People are being trained by "staying home" to understand that they really do not need a lot of these businesses.  They are also being made to understand that working from home is not a bad way to live.  Their employers are being taught that perhaps they do not need to carry the burden of massive rented space in towering office buildings at the city's center.