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Very good @nytopinion by @MattAFiedler on need for state aid: https://www.nytimes.com/2020/04/22/opinion/coronavirus-states-budgets.html?action=click&module=Opinion&pgtype=Homepage">https://www.nytimes.com/2020/04/2...
As he outlines, state budgets will be under pressure from this pandemic due to: (1) direct virus costs for needed public health spending; (2) lower state revenue from taxes and fees; (3) higher state social spending due to higher unemployment.
The CARES Act already dealt a lot with item (1), by providing $150 billion for states/locals that can only be used for added public health $. But this did nothing to help out with item (2) (lower revenue) or probably item (3).
As research by Fiedler w/ @jasonfurman & W. Powell has shown, of budget problems due to higher unemployment, items 2 &3, over 90% of them are due to lower revenue. That& #39;s key issue: collapse of sales & income tax revenue, & potentially other taxes/fees. https://www.brookings.edu/research/increasing-federal-support-for-state-medicaid-and-chip-programs-in-response-to-economic-downturns/">https://www.brookings.edu/research/...
Their proposal is a formula-based increase in Medicaid match. I have instead proposed a formula-based increase in general federal aid to both state governments AND local governments: https://www.upjohn.org/research-highlights/proposal-timely-responsive-federal-aid-state-and-local-governments-during-pandemic-recession">https://www.upjohn.org/research-...
So, I think there are some advantages in making the assistance more general, and explicitly including local governments in the program. But I agree w/ @MattAFiedler that the need for large-scale fed aid to state/local sector overrides wonky details of exact best way.
For ex, as he says, if the best we can do is get Congress to adopt a fixed aid package, that is better than nothing. A fixed $ amount has disadvantage that if recession is worse than predicted, there will then have to be a political struggle down the road to expand aid again.
But the key issue: we should not drag the U.S. economy down by failing to provide timely and generous federal aid to state/locals. Failing to provide such aid almost guarantees a more serious recession, & a more protracted recovery.
