Posted on 01/06/2003 9:41:49 AM PST by NormsRevenge
Watchdog: Higher Taxes Won't Cure State Budget Woes
Jim Burns, CNSNews.comAccording to a lyric in the song "Ball of Confusion" by the Motown group The Temptations, "Politicians say more taxes will solve everything. And the band played on."
Monday, Jan. 6, 2003
As new governors take office and state legislatures return to work in the first days of 2003, many states are considering tax increases in order to balance their budgets. But a study just released by the National Taxpayers Union Foundation (NTUF) concludes that higher taxes are the wrong solution for states to balance their books.
John Berthoud, president of the NTUF and author of the study, believes "a review of the last state budget crisis clearly shows that resorting to tax hikes will slow economic recovery and thus prolong the budget agonies that many states are experiencing."
The study said states that enacted tax hikes in the early 1990s experienced slower income, less employment and less population growth during the ensuing decade.
"The message of history is clear," Berthoud observed. "Ratcheting up taxes is a devastating poison pill for state economies.
"This lesson would be particularly true now, given the nation's sluggish growth. Further, voters have made very clear that they already believe the tax burden, which is at record levels in many states, is already too high as it is," he concluded.
But such thinking isn't stopping some governors. Washington State Democratic Governor Gary Locke said he is thinking about tax increases as a way to raise new state revenues.
Locke told the Olympian newspaper he wants state lawmakers and the public to first take a hard look at the state's spending priorities and just what existing tax money can purchase before he considers proposing tax increases.
The NTUF study commended Colorado Republican Governor Bill Owens, Virginia Democratic Governor Mark Warner and New Hampshire Republican Governor-elect Craig Benson as leaders who at least for now are "working to resolve budget shortfalls without resorting to higher taxes."
"These leaders have heard the message from voters and are stepping up to the leadership plate by delivering smaller, smarter government, rather than more taxes. We believe other governors around the country should be following their lead," said Berthoud.
In Virginia, a referendum to increase the sales tax, ostensibly to pay for future transportation projects, was overwhelmingly defeated by voters in two jurisdictions in last November's election.
Many state governors are avoiding mention of the "T-word" as they make adjustments in their budgets and/or government services.
In Louisiana, state sales taxes on food and utilities dropped from four to two percent beginning Jan. 1 and will be phased out entirely in July. But there is a catch. Louisianans may see their state income taxes go up.
Daniel Walsh, president of the Business Council Of New York State Inc., sent a letter to Republican Gov. George Pataki urging him to restrain state spending and reject higher taxes as he seeks to balance the 2003-2004 state budget.
In the letter, Walsh noted that a combination of tax cuts and spending restraints after Pataki assumed office in 1995 helped balance New York's budget.
In his inaugural speech on Wednesday, Pataki warned New Yorkers that the Empire State's economy is still ailing and the state's financial picture is not good. It will take commitment and sacrifice to make things right, Pataki said.
'Budget Balancing Tool'
Pataki told reporters in Albany last month that he isn't ruling out tax increases as a "budget balancing" tool. And, New York State Comptroller Alan Hevesi said Wednesday that Empire Staters had better get ready for bad times.
"We all know this is going to be a terrible, terrible budget because our revenues are down and the economy is down," said Hevesi during his swearing in as comptroller on Wednesday. "The public has got to start understanding that a lot of pain is coming with the decisions that will be made by the governor and the legislature."
Some insiders believe Pataki's administration will provide less money for higher education, necessitating an increase in tuition rates at state universities. The Metropolitan Transportation Authority, the public transportation system for New York City and Long Island, is also considered likely to take a hit in state aid, making inevitable the fare increases the MTA is already considering.
However, new laws that went into effect on New Year's Day will result in New Yorkers seeing more than $242 million in tax cuts for businesses, married couples, low-income families and college tuition expenses.
In Missouri, Democratic Governor Bob Holden announced Wednesday the elimination of 870 positions and $67 million in government spending. Most of the positions are actually vacancies that won't be filled, so only 96 state employees are losing their jobs.
State Budget Director Linda Luebbering said the cuts were needed because the state constitution requires Missouri to have a balanced budget.
"While the federal government is allowed to run a deficit, the state of Missouri cannot. One of the governor's most important constitutional responsibilities is to keep the state budget in balance," Luebbering said. "The governor has fulfilled those responsibilities by making sound fiscal decisions.
"We cannot afford to wait and see if revenues improve," said Luebbering. "The governor's actions are responsible management responses to declining revenues."
A continued national recession and federal tax cuts have contributed to anemic state revenues, according to Luebbering. Missouri ties its tax rates to the federal tax system, so that when federal tax revenue drops, so does state revenue.
"Well-intentioned efforts to stimulate the economy from the federal level have negative consequences for states," Luebbering said. In fact, 45 states have announced budget shortfalls.
Luebbering did not mention any possibility of state income tax increases in her budget statement.
In New Mexico, newly elected Democratic Governor and former Clinton administration official Bill Richardson is inheriting a state government that is not in fiscal trouble. Many observers are crediting former Republican Governor Gary Johnson for keeping the state out of a fiscal mess.
Richardson, in his inaugural speech, promised to propose a state income tax cut to the legislature when it returns to work later this month.
"We will lower our taxes on individuals and our businesses to grow our economy, and we will have a plan to pay for this," Richardson said in his inaugural speech on Wednesday.
In Michigan, many state economists are estimating that the Wolverine State faces a budget shortfall of up to $2 billion in the next fiscal year that begins Oct. 1. But Democratic Governor Jennifer Granholm vowed state taxes would not be raised.
Berthoud advised: "America's governors and state legislators have to confront (government) spending head-on. There is no other choice if states are going to get out of their current budget dilemmas without causing harm to their economies."
Same holds true for the Nation, but try to get the Dems to understand that...
Lowell Weicker got the state income tax passed in Connecticut and he won a "Profiles in Courage" award from the Kennedy foundation.
< /sarcasm>
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