Two states, virtually identical with populations and economies. Both have low levels of debt. Both have...

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Two states, virtually identical with populations and economies. Both have low levels of debt. Both have a state income tax of 5%. A recession happens which causes a budget deficit of a similar amount for both. One state approves a decent sized borrowing to fill the hole. One state approves a personal income tax hike of 4% to fill the hole. Describe the pros and cons of each approach from a credit perspective. Hint: Think about the short and long term effects these decisions will have on expenses and revenues. Two states, virtually identical with populations and economies. Both have low levels of debt. Both have a state income tax of 5%. A recession happens which causes a budget deficit of a similar amount for both. One state approves a decent sized borrowing to fill the hole. One state approves a personal income tax hike of 4% to fill the hole. Describe the pros and cons of each approach from a credit perspective. Hint: Think about the short and long term effects these decisions will have on expenses and revenues.

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The pros and cons of each approach from a credit perspective for the two virtually identical states facing a budget deficit due to a recession one choosing to borrow to fill the hole and the other opt... View the full answer