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Virginia’s Love Hate Relationship With Federal Spending

Those of us who live in states such as Virginia are lucky. If you downplay the accounting gimmicks, the Virginia tends to do a fairly good job of balancing its books. It is a technical surplus. The state has a long way to go before it can truly break away from old political accounting methods. Yet if your a Virginian, count yourself as one of the lucky ones.

Yesterday the city of Detroit made it official, it had to file for bankruptcy. The largest city to do so in American history. Decades of big government spending finally has taken its toll. Detroit joins at least seven other cities that have been forced to file for bankruptcy since 2010. It is not going to be the last. Discuss this issue, Charles Krauthammer said yesterday on Fox News:

“The question is, you know at large — the story of the United States which dominated the world economically, created all of these programs, entitlements, Social Security, Medicare, and now added on Obamacare, living on the glories of the past where we were the most dominant, without any rivals in the world, and now having to adapt to a reduced economy — are we going to be able to have commensurate cuts? And when you see all of the resistance to anything of that sort by especially Democrats and liberals, it doesn’t give it a lot of hope. In the end, you can have a bankruptcy for a city, but not for a country.”

Northern Virginia and many other cities throughout Virginia have done well, in part, because of the large federal government contracts that have been awarded in the post-09.11.01 world. The economic bust other areas of the countries have experienced has not really impacted our area. How long will this continue? Tough to tell. The state economy is quite diversified, however, the region will not be indefinitely immune to national economic problems.

For example, in a recent report about the Virginia economy, the Thomas Jefferson Institute for Public Policy concluded that “[b]ecause Virginia has benefited so substantially from the expansion in federal government spending, it stands to be impacted by the expected cut necessary to tackle the burgeoning U.S. budget deficit.” The region will most certainly feel federal budget reductions.

The good news is that politicians in the state including most Democrats and a large share of the Republicans, tend to be fiscal conservatives that are focused on creating conditions to stimulate economic growth by keeping low taxes and regulations. Now, if we could only find a way to ensure that more liberally-controlled counties such as Arlington, stop spending your tax dollars on $1,000,000 bus stops and bike share programs.

Getting a handle on out of control federal spending is important for Virginia and the rest of the nation. This should be the seminal issue of our time; however, the Obama Administration and a Republican-controlled House of Representatives has seen fit to invest political capital and considerable amounts of time on issues such as comprehensive immigration reform. While immigration reform is important, it should be done in a piecemeal manner. What should have been done comprehensively was tackling the tax code and regulatory system.

Even Virginia could use economic and regulatory relief. However, it is tough to plan for the long-term economic health of state or city when folks across the river are being indecisive about the future economic path of the nation. A large portion of Virginia’s economic engine will always include some appreciable measure of federal spending. How much depends on Washington, DC. Virginia is home to many federal agencies and private contractors who service the government. And so long as the U.S. Congress and White House fail to address the economic issues facing the nation, even the most fiscally conservative Republican or Democrat must seek out the unique business opportunities that Uncle Sam keeps doling out. So for now, we love it. But it is not sustainable.

All that said, something needs to be done about the U.S. federal debt. At today’s count, the figure is a mind-numbing $16 trillion.

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