Without federal aid, state and local governments will lose about $500 billion in revenue over the next two years, lopping three points off the U.S. GDP, costing four million jobs, and hobbling any U.S. economic recovery, Moody’s Analytics concluded in a research report.
And with less tax revenue coming in, there are forecasts states will face at least budget gaps of some $555 billion dollars through next year.
State, county, and municipal governments already cut spending an average of 5.6 percent in 2020’s second quarter. Local governments have laid off some 1.2 million workers since February.
Aware of the trend, Federal Reserve chair Jerome Powell worries that more government job cuts and shrinking budgets will “hold back the economic recovery if they continue to lay people off and if they continue to cut essential services.”
Governments below the federal level put $2.33 trillion into the economy in 2019, about 10.9 percent of GDP, and employed 13 percent of the American workforce.
States entered the current crisis with a median 7.8 percent of their revenues set aside for emergencies, compared to 4.8 percent when the Great Recession struck in 2008.
The reserve, however, has not been enough.
Politicians have “concerns about spending” more stimulus money “but the cost of doing nothing is worse,” said U.S. Senator Bill Cassidy, whose state faces a 46-percent plunge in revenues due to the loss of tourist dollars and the collapse of the global oil and gas industry.
TREND FORECAST: As tax revenue streams dry up, America’s already rotted infrastructure will further decay. Already, over 700 cities have cut back on buying equipment, fixing roads, and upgrading infrastructures according to the National League of Cities.
And, the lower tax revenues go, the more politicians and bureaucrats will do increase taxes. This in turn will escalate anti-tax movements and new political party formations.
