The word “progressive” doesn’t mean “good.” All it means is that as you progress up the income ladder, your marginal tax rate, which is your tax rate on additional income, increases. The US government and many state governments have progressive income taxes. So they will have time to implement gradual spending cuts if needed to balance their budgets. By doing so, they will not face a large loss in revenue but will, instead, find that revenues grow more slowly. These surpluses give state governments an opportunity to inflation index. Much of it was due to large federal government payments to state governments. Some of this was the natural result of the V-shaped recovery that occurred after lockdowns were relaxed. In fiscal year 2021, according to the National Association of State Budget Officers, revenue for the fifty states increased by a whopping 14.5 percent. Those fifteen state governments plus the government of the District of Columbia should index tax brackets immediately. Inflation is acting as a revenue machine for state governments. So the high inflation that we have experienced for more than a year is driving taxpayers in those unindexed states into higher tax brackets. The further bad news is that many state governments don’t index their tax brackets for inflation. The bad news is that many of them are not. The good news is that many of them are doing so. But because the federal government gave huge subsidies to state governments, many of those governments now have bulging surpluses. I turned out to be right on point 1, and although I was also right on point 2, few state governments dealt with their deficits by cutting spending. I pointed out two facts: (1) the state budget deficits were not nearly as bad as many governors and others had claimed, and (2) to the extent they had deficits, state governments could cut spending. In June 2020, I argued, in “ Just Say No to State and Local Bailouts,” against the federal government giving state governments money to make up for state governments’ budget deficits.
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