Median Real (Inflation Adjusted) Household Income

Household income is barely keeping up with inflation. That is, real household incomes are down 8.5% since 2000, and state and local government taxes and spending are rising at twice the rate of inflation.  What is a possible scenario going forward if the aforementioned trend continues? State and local governments will have to raise taxes to maintain their trend of higher spending. Higher taxes reduce household spending, which reduces income and sales tax revenues. In response, state and local governments raise taxes again. This further suppresses disposable income and consumption.  In other words, the desired outcome put forth by state and local governments as a possible solution is impossible to attain because of the faulty logic, or the proverbial “Catch-22” situation.