Using Stimulus Funds for Tax Cuts? It’s Fine.

(Bloomberg Opinion) -- Here's a story of how federalism may lead to policy wins for Republicans — and electoral help for Democrats.

The Washington Post's Catherine Rampell has a nice column about how generous aid to states from a series of federal relief bills, including the large one passed last year without any Republican support, is giving Republicans an opportunity to slash taxes in states where they dominate. Democrats were already upset about their opponents taking credit for projects funded by bills they opposed. They had even anticipated that Republicans would try to use these funds for tax cuts, but failed to agree on language prohibiting it.

As Rampell notes, this allows Republicans at the state level to bash Washington over budget deficits and irresponsible spending, while nevertheless making use of the money as they see fit.

Democrats obviously aren't going to be thrilled about the situation. But they shouldn't get too upset with themselves.

For one thing, the main point of the spending was to insure against a long-lasting recession — or worse. The priority was getting money, and plenty of it, out the door quickly. Democrats remembered how states slashed spending during and after the 2007-2009 recession and how that helped to impede the recovery, perhaps for several years. They wanted to prevent that this time. They succeeded. Economists are still arguing about the extent to which all that spending made inflation worse, and everyone can debate whether that risk was a reasonable price to pay for a rapid recovery of growth and jobs. But the policy certainly appears to have achieved its main objective.

For another thing: Democrats shouldn't be too upset, policy-wise, that Republican states have the cash to fund regressive tax cuts and are doing so. Sure, that's not what Democrats would do (and are doing) with surplus money. But tax cuts, even regressive ones, surely are better from a Democratic perspective than slashing money on social services and basic government infrastructure. And there's a good chance that a flood of money to the states prevented Republicans from reacting to tight budgets with spending cuts.

Of course, it's also true that Democrats are able to use budget flexibility for their priorities where they control state and local governments. And those governments might make better decisions for their constituents than the government in Washington would (and federalism can allow far more citizens to be involved in meaningful policy decisions than if they were all made by the federal government).

Which raises the question of electoral benefits. Yes, Republican governors and state legislators may be doing things they can brag about because Democrats in Congress and the White House supplied the money. But here's where partisan polarization matters. Elections tend to be driven by what voters think about the president. For strong partisans, nothing is going to shake that tendency — solid Democrats and Republicans will vote a straight ticket regardless of pretty much anything. But if weaker partisans and independents approve of how a Democratic president is doing, they'll tend to vote Democratic for every other set of candidates, instead of making separate judgements for each. If they think the president is doing a bad job, they'll vote for Republicans.

And for those weak partisans and independents, what likely matters is results. If they're happy with the way things are going, they'll credit the president — even if what they're happy about is actually the work of state or local governments (or, for that matter, is entirely unrelated to government policy). Of course, relief funds aside, voters are quite unhappy right now, giving Biden lousy approval ratings and putting Democrats at risk in November. But that doesn't change the main point that it's outcomes that they tend to care about.

I'm not saying that wealthy folks in Mississippi will suddenly vote for Democrats if they get a big tax cut from state-level Republicans. If they're already solid partisans, they'll blame Biden for bad things and assume that good things happen despite him (just as strong Democrats will do the opposite). But on the margins, and among those who aren't already committed to one party? Happy voters tend to support incumbents in general and the party in the White House especially. And they're not apt to look too hard into what, and who, has made them happy.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Bernstein is a Bloomberg Opinion columnist covering politics and policy. He taught political science at the University of Texas at San Antonio and DePauw University and wrote A Plain Blog About Politics.