John Hood: Helene Shows Value of Fiscal Restraint
RALEIGH — The devastation wreaked on North Carolina by Hurricane Helene will take weeks to assess, months to clear out, and years to repair or rebuild. Second only to the value of the lives lost will be the exorbitant fiscal and economic costs of our recovery.
Our state government is reasonably well-prepared to shoulder its share. Our federal government is not.
Last week, the General Assembly authorized an initial $273 million withdrawal from North Carolina’s rainy-day fund to cover initial recovery expenses and changes in elections administration. Gov. Roy Cooper signed the bill.
That’s only the first tranche of state expenditure. Lawmakers will return to the capital more than once before year’s end, then commence regular session in early 2025. They’ll appropriate much more money for various reconstruction efforts, from academic campuses and government offices to highways, bridges, water systems, and other infrastructure.
North Carolina has lots of money set aside. The rainy-day fund itself still contains about $4.5 billion. Other accounts and our unreserved credit balance contain billions more. I don’t mean to minimize the storm’s staggering costs. I’m just pointing out that the General Assembly won’t have to cut other programs, raise taxes, or borrow money to fulfill its responsibilities.
Congress is another story. Over the past couple of decades, presidents and lawmakers of both parties have run massive federal deficits and made exorbitant spending promises that far exceed any reasonable expectation of revenues at economically sustainable tax rates.
In a recent Reason magazine piece, Veronique de Rugy of the Mercatus Center pointed out that the federal debt now exceeds $28 trillion — $2 trillion more than last year and $6 trillion more than when the Biden-Harris team entered the White House.
“This debt stands at 100% of America’s gross domestic product, which, other than a one-year exception at the end of World War II, is the highest ratio we’ve ever had,” she wrote. “Unlike in 1946, today’s debt is only going to grow. Indeed, debt-to-GDP took a nearly 30-year dive to reach 23% in 1974. Today, federal debt is projected — under the rosiest scenarios — to rise to 166% in 30 years.”
In other words, every dollar Congress authorizes and the executive branch distributes for hurricane relief in North Carolina is, in effect, a borrowed dollar. It represents a debt to be paid in the future, not a gift.
Of course, North Carolinians aren’t the only ones who must pay each dollar back (with interest). Decades ago, our politicians essentially nationalized the provision of relief and reconstruction after natural disasters. I don’t think that was wise. States and localities ought to make their own preparations and save their own money to handle future emergencies.
But at this point, I’m not sure how to extricate ourselves from this process. If Congress passed a law next year to slash federal disaster relief and then Kansas gets clobbered by tornados, their taxpayers could reasonably complain that they helped clean up after North Carolina’s disaster and then didn’t get their “turn” at withdrawing funds for their own.
The next best thing, then, is for future Congresses and presidents to take their budgeting responsibilities more seriously. As I’ve pointed out many times, the opportunity to bring federal revenues and expenditures closer to alignment without painful adjustment has long since passed. The gap is too large.
It can’t be substantially closed by eliminating “waste, fraud, and abuse.” Nor can it be substantially closed by “tax hikes on the wealthy.” Contrary to popular misconception, the United States already has one of the most steeply progressive tax codes in the developed world. According to the left-wing Institute on Taxation and Economic Policy, the bottom quintile of American taxpayers pay an average of 17% of their income in federal, state, and local taxes. The middle quintile pays 26%. The wealthiest 1% pay 35%.
Washington’s fiscal recklessness should be one of the top voting issues this year. Alas, it isn’t. But ignoring the problem won’t make it go away.
John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).
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