Bailouts for states next.

WILL MCCONNEL AND TRUMP PLAY GOOD COP BAD COP?

UNLIKELY FEDERAL GOVERNMENT CAN MAKE ALL STATES 100%

Yesterday Senate leader Mitch McConnel remarked that the states should declare bankruptcy rather than be bailed out by the federal government. President Trump has stated they he was in favor of some help for state governments. Is this their true positions?, or are they just beginning a negotiation with the states.

Many states are going to have a large budget deficit, due to a reduction in their state tax revenues. Many of these states have not made any attempt to counter these anticipated lessening of revenues by cutting costs and laying off government workers. Many states have guaranteed government workers full wages and benefits indefinitely.

It is unlikely that the federal government will be able to subsidize the state, local and city governments for all their lost revenue. They will need to start planning on how they are going to address this very severe problem.

McConnel's statement may seem harsh, but many government's are hamstrung to make any real cuts or decreases due to union contracts and other legal agreements.  Declaring bankruptcy often allows them to renegotiate their contracts. In any case, they are going to have a lot of very hard decisions to make.

The facts remain that the federal government will not be able to make everyone whole. The states and other governments will need to make many hard decisions. Many will just go to the taxpayers with tax increases, which will create other problems. Many taxpayers are already in financial straits.  States that dramatically raise taxes will lower their competitiveness with other states and diminish their economic recovery.

It is likely that the federal government will be in favor for some help for states, particularly for testing and coronavirus costs, but it is also very unlikely they will receive as much as they would like.