Fiscal Lunacy from D.C.'s Politicians, Fiscal Realism from the Washington Post

Dan Mitchell

June 10

As I wrote yesterday, trend lines are important for fiscal policy.

If a government complies with Golden Rule over a multi-year period, that's almost always a recipe for good fiscal outcomes.

But if politicians allows the burden of spending to climb faster than the productive sector of the economy, that usually creates conditions for budgetary troubles.

As you might expect, Washington is filled with the wrong kind of politicians. But I'm not referring to the spendaholics in Congress and the White House.

Today, we're going to look at the fiscal pyromaniacs in charge of the District of Columbia's budget.

Here's some data from the 2018 and 2023 State Expenditure Reports published by the National Association of State Budget Officers.

If you do the math, you'll find that government spending in D.C. increased by about 50 percent between 2016 and 2022.

Yet if you look at the federal government's inflation calculator, prices rose by 23 percent over the same time period.

In other words, the burden of spending grew more than two times faster than inflation.

This has produced two very predictable outcomes. First, there is now a fiscal mess in D.C. Second, city politicians want to raise taxes rather than impose long-overdue spending restraint.

This is so irresponsible that even the left-leaning Washington Post is objecting. Here are some excerpts from a new editorial.

D.C. faces a cash crunch. ...The District's leaders have tough choices to make in their 2025 budget to close a $700 million hole. ...Taxes are going up... Ms. Bowser (D) would raise the paid family leave tax that businesses pay, add an 80-cent per night fee on hotel rooms and increase the sales tax (gradually, from 6 percent now to 7 percent by fiscal 2027). In total, revenue would rise $447 million next year under the mayor's proposal. The council would raise more — $550 million in new revenue next year — via both a higher paid family leave tax and higher property taxes on homes worth $2.5 million or above. In fact, the council's budget closes the vast majority of the budget shortfall via higher taxes. That's unwise. Raising so many taxes, in lieu of spending cuts, signals to businesses and residents...a warning sign of more taxes and fees to come if budget holes persist. As business leaders consider whether to keep their business in the city or relocate to Maryland or Virginia, they will factor in the city's...finances. ...there has to be a reality check on taxes and spending. Scaling back is hard. But making tough choices now is better than losing business to Virginia and Maryland.

Kudos to the Washington Post for recognizing (again!) that tax increases are the wrong approach.

Too bad they don't apply the same logic when looking at the federal government's finances. But I guess a journey of a thousand miles begins with a first step.