Governor’s Veto Creates Fiscal Drag on the State’s Economy
The Governor has signed the Senate’s budget and immediately started to veto most of its line item spending. He only kept those items that would allow the State’s 77,000 member workforce to get paid-such as public welfare, state parks, and inmate education and training. He even allowed his office to receive it’s funding of $6.5 million. While he has authorized $11 billion of the $27.3 billion budget sent by the Senate, Commonwealth citizens are still paying taxes which are being collected and not spent. This is creating a fiscal drag on the State’s economy.
Considering that the Commonwealth collects more than $2 billion per month in tax revenues, this skeleton budget is only accounting for less than half, which leaves more than $1 billion per month languishing in the State Treasury. As this money goes unspent, it is not generating economic activity across the state. Even with a simple multiplier effect, this lack of spending is having a dramatic financial drag on the economy. Thus this budget battle is doing more harm than originally estimated.
Here’s an idea. While the Governor and Legislature battle it out, they could do the state a favor and provide a tax holiday at least until the budget stalemate is over. Cutting the state’s tax rates in half, which would still provide enough revenue to cover the skeleton budget, would put more money into the pockets of the citizens and remove the fiscal drag on the economy.
Giving people more money in their pockets to spend as they wish may create more economic activity and result in more tax revenues than anticipated. Who knows, maybe the people will realize just how much better off they are without all this government spending and demand real cuts to the state’s budget and tax rates.