Coronavirus infection levels are climbing all around the country again. As more and more Americans stay home to avoid infection, those rising infection rates will likely bring with them another serious economic downturn, just like they did in the spring. The drop in consumer spending will harm the bottom line of small businesses, which will then lay off employees — further depressing consumer demand.
Clearly, a new federal stimulus package is necessary to save the economy from collapsing — but with the Biden Administration not taking office until January 20, and with Senate leadership in doubt, it’s unlikely that we’ll be seeing a meaningful stimulus package from Washington DC anytime soon.
This means that state governments are on their own in the fight to protect their economies from the impacts of COVID-19. But most states have suffered a decline in revenue as consumer spending has dropped in the pandemic, and so they’re confronting budget deficiencies at exactly the moment when they most need to invest in their own economies. We know that slashing budgets during a recession actually slows economic recoveries, so how can states increase revenue?
For the answer to that question, look to New Jersey.
This year, New Jersey Governor Phil Murphy and the state legislature agreed on a deal to raise the income tax by 2% on incomes over $1 million per year to address the budget crisis brought on by the pandemic. Not only will this tax help administer coronavirus relief to the communities and small businesses that need it most, but it will also help rebalance a regressive state tax code which puts a bigger tax burden on poorer households.
In a recent episode of Pitchfork Economics, David Goldstein and Nick Hanauer interview Governor Murphy about his decision to tax the rich.