My colleagues and I have previously written on the State of Maine’s impending revenue shortfall, which is projected to top $1 billion over the next two-year budget cycle due to the coronavirus pandemic and ensuing societal shutdowns.
Gov. Janet Mills, in the second and final biennium of her first term, will be pushed to scale back her spending wishlist for state government. After proposing a budget in January 2019 that increased spending by nearly $1 billion over the biennium–an 11% increase–legislators approved (and she signed) a budget that grew spending by 10%.
Gov. Mills recently directed state agencies to find 10% in cuts in order to make up for this shortfall, but recently moved back that deadline from Sept. 1 to Oct. 19. In order to weather this pandemic slump and lockdown-induced recession, state government must limit its spending. There is no other reasonable alternative. The legislature abdicated its duty to lead, so the governor ordered Mainers to close their businesses, leading to massive layoffs and stress on the state benefits systems. Under no plan based in reality can Mainers afford to pay more in taxes this year.
Unlike states, businesses, and households, the federal government does not have to balance its spending and income. For years, Washington DC has kicked the can down the road by passing 3-month “continuing resolutions” to merely keep the federal government funded and avoid a shutdown. Meanwhile, the national debt steadily climbs closer to $27 trillion.
The latest report from the Congressional Budget Office (CBO) projects a whopping $3.3 trillion budget deficit just this year, triple that of last year. That is to say, the federal government is spending almost double what it will collect in taxes this year. As a result of this monstrous shortfall, the CBO estimates that national debt will consume 98% of GDP, or nearly the total yearly output of the United States’ economy. This would make debt the largest share of GDP since 1945, following the massive spending of World War II.
Similar to the estimate from Mike Allen, Maine’s Associate Commissioner for Tax Policy, the CBO predicts that total economic output will not return to pre-pandemic levels until the middle of 2022, projecting a $10 trillion loss of output due to pandemic.
In a piece for the American Institute of Economic Research, Antony Davies and James R. Harrigan put this unfathomably large number into perspective: “the median US household earns $63,000. A $10 trillion loss is equivalent to wiping out the incomes of 30 million US households each year for more than five years.”
This economic crisis, one much greater than the coronavirus, has caused nearly triple the number of lost jobs and quadruple the number of Americans on unemployment insurance compared to the 2008 recession. These grave statistics, combined with other worrisome indicators like increasing long-term unemployment, are causing many economists to be on the lookout for a double-dip recession.
The suffering that drastic, reckless lockdown policies have wrought the world over will sadly continue for many years. Considering the manageable risk the coronavirus poses to society—especially today, as many areas have arguably reached herd immunity—we should hope that people do not forget how painful politicians and state-sponsored public health officials have made this time for us all.