Can Uncle Sam Afford a $1.9 Trillion Stimulus?

President Joe Biden and Democrats in Congress are pushing for a $1.9 trillion COVID-19 relief package. Congress has already approved $4 trillion in pandemic relief and stimulus measures and billions of that money has yet to be spent. Congress is also considering a $6.1 trillion budget and the $28 trillion national debt continues to escalate. Federal policymakers should avoid another massive stimulus until states have been able to utilize all relief funds that have been appropriated. The insanity of the modern monetary theory argues that debt does not matter, but the nation is entering into dangerous territory. How long can Uncle Sam avoid the consequences of the laws of economics?

“History shows that massive national debt is a major cause of decline, even extinction, of nations that refuse to live within their means,” wrote Cal Thomas. Both political parties are responsible for the out-of-control spending that has been occurring for decades. It is time that policymakers take our debt crisis seriously.

Democrats are arguing that it is vital that Congress pass the $1.9 trillion relief package. One part of the $1.9 trillion stimulus measure provides $350 billion in aid to state and local governments and $170 billion for public education. It is argued that states and localities need federal support as a result of massive revenue loss caused by the COVID-19 economic downturn.

However, as the economy is starting to recover from the COVID-19 triggered recession state revenues are not in as bad shape as originally predicted. Iowa’s economy continues to recover, and unemployment is at 3.1 percent. Governor Kim Reynolds and the Republican-led legislature have been following fiscal conservative principles of limiting spending and reducing tax rates. As a result of conservative budgeting practices, Iowa’s fiscal house was not only prepared for the economic emergency caused by the COVID-19 pandemic but remains in strong condition. Iowa’s budget has a $305 million surplus, and over $770 million in reserves. Iowa’s revenues were also helped as a result of broadening the sales tax base to include online sales.

At the start of the pandemic the federal government responded with a massive amount of relief through five different stimulus measures. Iowa received $1.25 billion in CARES Act funds. It is estimated that Iowa has received $5 billion in total federal relief. Governor Kim Reynolds has allocated federal relief dollars to support the unemployment trust fund, public education, aid to farmers, small businesses, housing assistance, and numerous other areas. Iowa government agencies such as the Department of Health and Human Services, Department of Public Health, and other agencies have also received funds.

History has proven stimulus spending does not work to revitalize the economy and the national debt is becoming a danger to both our economy and security. Further, economic stimulus spending does not have a good track record in producing recovery. “The Great Recession policies demonstrated the inability of government spending programs to boost private activity or increase total output. The private sector, not Washington, must lead the economic recovery,” stated Adam Michel, Senior Policy Analyst with the Grover M. Herman Center at The Heritage Foundation.

During the Great Depression, President Franklin D. Roosevelt’s New Deal failed at economic recovery. Henry Morgenthau, who served as President Roosevelt’s Secretary of the Treasury, in 1939 described the failure of the New Deal spending programs. “We have tried spending money. We are spending more than we have ever spent before and it does not work,” stated Morgenthau. Further, Morgenthau noted that “after eight years of this Administration we have just as much unemployment as when we started…And enormous debt to boot!”

Finally, Iowa taxpayers should not be forced to bail out states such as Illinois, California, and New York that have followed poor economic policies. These states are pushing for additional federal stimulus in hopes to bail out their mismanagement from poor policy and runaway spending.

Iowa is following a path of fiscal prudence and policymakers again will need to be cautious and to keep spending levels low. Another stimulus would only punish Iowa taxpayers while irresponsible states such as Illinois, New York, California, among others would reap the benefits for their reckless tax and spending policies.

“It is undoubtedly true that many states and cities have accumulated financial challenges — like massive unfunded pension liabilities and other debts — over many years, if not decades, of irresponsible policy decisions. However, just because you federalize a problem does not magically make it disappear,” noted Jonathan Williams, Chief Economist and Executive Vice President of Policy at the American Legislative Exchange Council (ALEC).

The problem for many states is the failure to address spending. “Make no mistake: State and local governments do not lack revenue. They lack spending restraint,” stated Williams.

These states have demonstrated they not only have over promised on pensions, but that it is not possible to tax and spend their way to prosperity. Williams correctly argues that what is truly needed by these states is real budget reform. “However, if states expect a future federal bailout, what incentive do they have to undertake some of the heavy lifting that it takes to enact big-picture reforms like creating a priority-based budget or enacting institutional spending limits to protect taxpayers from the next economic crisis?” asked Williams.

Former United States Senator Phil Gramm and Mike Solon, a partner with US Policy Metrics, warned that additional stimulus spending could cause substantial economic problems. “Yet all the factors are present to generate rising prices and eventually higher interest rates: excess fiscal stimulus, excessive money-supply growth, impaired domestic production capacity, and impaired international production and transportation capacity,” wrote Gramm and Solon. These are just some of the consequences that may occur. This does not include the economic consequences if the Biden Administration and Congress attempt to increase taxes and regulations on the economy.

Another round of economic stimulus is not needed at this time. Congress needs to allow the trillions in federal relief to work before authorizing additional taxpayer dollars and driving the nation deeper into debt. “The laws of economics haven’t been repealed, no matter what the modern-monetary theorists say,” stated a recent editorial by The Wall Street Journal.

President Herbert Hoover stated, “blessed are the young for they shall inherit the national debt.” This is just one consequence of the national debt. The result of this debt will lead to massive tax increases to service the debt and austerity-style budget cuts. Future generations should not be shackled with this enormous level of debt nor should states that have practiced poor fiscal policies be bailed out, only to repeat the same fiscal disaster again.


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