Meghan Mcardle at the Atlantic has a big post today about a looming state budget crisis. It focuses primarily on California and New York’s budget problems, but the example is country-wide.
Unlike the federal government, almost all states have to enact budgets that are nominally balanced. A recession may be the worst time to raise taxes, but it is also the worst time to cut services. Unfortunately, states have to do one or the other. And sometimes, as in those Depression-era school districts, they’re forced to do both.
Mcardle lists off the entangled webs of why both cutting spending and/or raising taxes, seen as quick ways to fix a budget shortfall, don’t work in tough financial times. The piece is definitely worth a look.