The Real Pain Hasn’t Even Started

Last week Jim Fritz, the superintendent of my high school alma mater, Anthony Wayne High School in Whitehouse, Ohio, tweeted a dire warning about funding cuts.

I expect this is the case in most school districts throughout the state. The state of Ohio, like most states with an income tax, gets a significant chunk of their budget from tax revenue.

Source: https://interactivebudget.ohio.gov/Revenues/Detail.aspx

2/3 of Ohio’s revenue comes from taxes and 42% of that tax revenue comes from income and excise taxes. Another 34% comes from sales tax.

When you have a bunch of people not working, they are not getting paid and therefore aren’t paying income taxes.

Likewise when you quarantine a state of almost 12 million people, almost all of whom are healthy, so they can’t go shopping, you are going to take a huge chunk out of how much sales tax they are paying.

Then on the other side, you have a lot of people filing for unemployment, food assistance and other welfare benefits.

As of last week, over 1.1 million people in Ohio had filed for unemployment or around 10% of the entire state. As of the linked report, half were still waiting to receive their unemployment check. Those people aren’t paying taxes and probably aren’t buying much.

More people taking out plus fewer people putting in = a much larger budget shortfall.

Cuts are going to have to be made as the state of Ohio can’t print up magical TrumpBux like the Federal government. Other states, including perpetually mismanaged Illinois, are in much worse shape.

Illinois’ Federal Bailout Request Is An Admission Of Its Massive Pension Problem

Illinois State Senate President Don Harmon, through the Illinois congressional delegation, recently requested a $10 billion public pension bailout from the federal government.

A lot of the problems were already lurking before the wheels came off. Now they are just getting exposed as kicking the can down the road becomes harder when the revenue spigot is turned off.

Nationally the problem is just as severe. Unemployment in the U.S. hit nearly 15% last week and it is likely to go higher.

Unemployment numbers to get worse, ‘could be’ 25%: Mnuchin

The U.S. unemployment rate will likely get worse before it gets better, Treasury Secretary Steven Mnuchin said Sunday after unemployment hit 14.7 percent last week, the highest level since the Great Depression.

Actual U.S. unemployment “could be” close to Great Depression levels at 25 percent, Mnuchin said.

The worst of this is going to be coming down the road later as tax revenues are trailing the pandemic and the state checking accounts start to run dry (unless they get a bailout). I expect to see a lot of road work, school funding, municipal projects delayed and even some government jobs cut (although not nearly enough). We might even see states like Illinois declare bankruptcy, something Democrats don’t want because I believe that would allow the states to tear up the ridiculous contracts with unionized state employees.

People and businesses are both in bad shape and I expect to see a ton of bankruptcies…

“Biblical” Wave Of Bankruptcies Is About To Flood The US

Add in food shortages, a rebound in gas prices as oil refineries and exploration shut down and the very real possibility of a bounce in coronavirus next fall as temperatures cool back down and the prognosis is grim.

Don’t be fooled into thinking we are in good shape just because malls and restaurants are about to reopen. A sober look to the near future show a lot of problems are just getting started.