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Obama a conservative on state bailouts
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AP Photo/Remy de la Mauviniere: President Obama says no to state bailouts.
President Obama’s position on bailouts for state governments is—surprisingly—conservative. When asked if he would extend federal aid to financially-strapped states like California, the President responded, “states have to balance their budgets and so they have got to make some very difficult choices.”
The President’s analysis is absolutely correct. California has been fiscally reckless for far too long and now the state’s leaders must face reality. The answer is not another bailout at the expense of taxpayers who have nothing to do with California’s financial troubles. The answer is to devise a more sober fiscal policy and raise more revenue.
Now that the federal government has closed its wallet, the only way to proceed is to reduce spending and cut taxes.
By reducing spending the state government will be forced to fund only those programs and projects that are necessary. The wastefulness made possible in the past by California’s lavish budgets will be effectively eliminated.
Paradoxically, by cutting taxes the state will provide individuals and businesses alike with the incentive to be more productive—thus increasing tax receipts. As many economists have demonstrated, wealthier, more-productive citizens generate higher tax revenues than poorer, less-productive ones. Economist Robert P. Murphy, for example, points out that reduced tax rates give individuals “the incentive to produce more.” Combined with the necessary drastic spending cuts, a wealthier base of taxpayers would do wonders for California’s economy and the state government’s budget troubles.
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