If You Soak the Rich, Will They Leave?

Cities and states across the country are facing a conundrum: They are desperate for cash because of the ravages of the COVID-19 recession. Rich people are pretty much the only ones who have any, because of both the recession and the yawning inequality that long predated it. But if cities and states raise taxes on the 1 percent, they worry that rich families might simply leave, no longer bound to their offices or their children’s schools. The conundrum is real, and the solution is easy enough: Let the federal government help states and cities circumvent the whole issue.

The pandemic recession has battered local coffers, causing of an estimated $155 billion in 2020 and. The federal government could easily finance those kinds of deficits by issuing bonds. But doing so is harder for local governments, which generally have to keep their budgets balanced and often have limits on their borrowing. When big recessions hit, and the COVID-19 recession is a huge one, many of them have no choice but to raise revenue or cut services.