Sending surplus to taxpayers is bad economics

On the surface, to someone who doesn’t understand macroeconomics, sending surplus money back to taxpayers sounds like a great idea. It sounds like a benefit to taxpayers to give them relief and helps people out. Right?

But in reality, it is not a good policy.

This creates a pro-cyclical fiscal policy which means people pay more taxes and get fewer services during recessions, as well as pay a lower tax rate and get more services during times of economic growth. During times of economic growth, this will exacerbate inflation, and create significantly higher growth rates during boom times.

During recessions, however, this means state governments have to rely on federal government spending in order to keep their economies afloat, and if the federal government is someday unwilling to stabilize the economy by not subscribing to Keynesian economics, this will exacerbate recessions.

There are decent arguments for using rainy day funds to help pull people out of poverty during times of significant economic growth, but the more prudent answer would be to save that money so that states have money to use during times of recession to help the economy keep an even keel.

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