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Dan asked in Social ScienceEconomics · 1 decade ago

Doesn't all the states' tax increases negate the keynesian spending by the fed?

2 Answers

  • 1 decade ago
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    1. When the states tax and spend the tax revenues, the same amount gets spent as if the taxpayers had spent directly. Assuming there spending multiplier is the same for individual and state government spending (big assumption), this has no Keynesian effect.

    What makes the federal expenditures Keynesian is that they are deficit spending - they add to the total spending by the amount borrowed, rather than just changing who does the spending.

    (In theory, tax cuts with no decrease in spending would also be Keynesian in that they would also increase deficits and hence the total amount spent. Again, this assumes the same spending multiplier - which is a big bone of contention.)

    2. And even from a simplistic point of view - if higher state taxes did have a negative effect in terms of making the economy worse, then it would be all the more important to have the federal spending to prevent things from getting worse.

    3. The total Federal tax burden and budget is much higher than the combined state and local taxes and budgets.



  • 4 years ago

    It is just like the immigration issue. The idea of closing the border and then working out a solution to a guest worker program or getting green cards for those that are already here is fought at every turn. The government spending is the same way. Freeze the spending and then work out how much to tax or what tax breaks to keep but until they get a handle on growing the budget then keep the tax breaks in place and let the borrowing climb until the American public gets so uncomfortable that they get someone in office to fix the problem. Stabilize the problem and then find a solution. That is how most families do their household budgets. Why can't the government do the same.

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