June 27, 2022

State governments are handing out tax breaks to residents to help with inflation.

Not long ago the Canadian province of Quebec, which is like a large U.S. state, was handing out $500 to every taxpayer who earned less than $100,000 annually. But it’s not just Canada. It’s much of North America. 

Some U.S. politicians proposed something similar, but it’s unlikely to pass. And the state of Maryland suspended its gas tax through April, while others are considering similar tactics.

Who knows where this all ends? Obviously, the folks proposing the checks don’t think the stimulus of the past few years has anything to do with our current inflation situation. Or if they do, they’re ignoring the consequences in favor of another short-term fix.

Kansas, New Mexico, Iowa, Indiana, and Idaho have all proposed relief in various forms. And these inflation solutions know no party lines. Democrats and Republicans in many states agree that everyone should get lower taxes and tax breaks right now.

But economists warn that cutting taxes could exacerbate the problem by putting more money in people’s pockets and risk further stimulating already rampant consumer demand. That would push prices even higher.

How did we get here? It’s partly due to a past government “fix.”

Last year, the American Rescue Plan gave $350 billion to state and local governments. Much of that money has gone untapped as states and cities scramble to spend. Tax breaks are the best solution from state governors, many of whom are facing re-election campaigns in November.

So, let’s just give more money away!

Look, this may be well-intentioned. But it’s part of what got us into this mess in the first place.