State Taxpayers, Take Cover! State governments across the country get ready to raise taxes in 2003

By Chris Kinnan
Citizens for a Sound Economy

11/20/02


This is supposed to be the political honeymoon period. After all, Election 2002 was just three weeks ago. So, why are new state legislators and governors suddenly talking taxes?

In Florida, for example, new Republican Senate President Jim King won’t rule out a tax increase, saying he doesn’t see “the tax word as being a taboo subject.” Maryland is looking at so many new taxes, a key budget leader “joked darkly” to the Washington Post “If it moves, we'll tax it. If it doesn't move, we'll tax it. If it moves too slow, we'll tax it. If it moves too fast, we'll tax it.” Taxpayers, take cover!

The tax debate is underway because there’s a fiscal crisis brewing in state capitals across the country. As a group, the states are dealing with a budget deficit of $50 billion, or about 10 percent of total state government spending. And it is going to get worse.

This year, thirty-nine states managed to close some of this gap with $15 billion in budget cuts, spending $15 billion from “rainy day funds”, and raising taxes by $3.6 billion. Most of these measures were short-term, designed to put off the day of reckoning until after the 2002 election.

Well, the election is over and now 2003 is practically here, and the economic outlook hasn’t improved over 2002. A new report from the National Governor’s Association notes that “the evidence is overwhelming that 2003 will be much worse than 2002…” States are going further into the red, and have mostly wiped out their rainy day funds. For many states, the choice is simple: raising taxes or cutting spending.

Unfortunately, many states are more interested in raising taxes than cutting spending.

That’s because state governments are addicted to spending. The Cato Institute found that, between 1992 and 1998 state revenues grew at almost twice the rate of inflation plus population growth. State spending increased faster than both personal income and economic output. State governments got hooked on all of this new money, growing vast new empires in education and public welfare. In fact, health care is now 27% of the state budgets and is growing at an unsustainable 11% a year.

Unlike the federal government, which is piling up trillions in national debt, states are more sensitive to bond ratings and some states have a legal requirement to achieve a balanced budget. So, unlike the federal government (which is running up a $160 billion deficit this year), state governments are forced to face this issue head on.

So, greedy states are looking everywhere for more money to spend. Coming soon to a state near you: new cigarette taxes, cellphone user fees, more gambling and slots, higher sales taxes, excess property taxes, and a new campaign to collect sales tax on Internet sales. And that’s just the stuff we’ve heard about.

To lay the groundwork to raise taxes, some states are threatening to enact across-the-board cuts. These sound appealing but are foolish policy, and actually serve to advance the pro-tax agenda. In fact, it is often the pro-tax legislators who drag this idea out to panic the media and voters into a tax increase. That’s because across-the-board cuts hit valuable, symbolic, and popular programs like law enforcement as much as they hit wasteful bureaucracy.

It’s the same strategy Bill Clinton used when he shut down the Washington monument in 1995 during the budget battles with the Gingrich-led Republican Congress. Look for this kind of hysteria coming from the state capitals in the new year.

The answer: states should target entire programs for elimination, rather than cutting all programs equally. Don’t cut cops and colleges; target the truly wasteful spending programs. By eliminating entire programs, when tax revenues finally recover, there won’t be across-the-board new spending increases.

Eliminating entire programs solves another problem: reducing bloated state government employment rolls. Unlike businesses in trouble, states are usually unwilling to lay-off their personnel. It’s a last resort for them. They’d rather sacrifice the quality of services by cutting operational budgets to the bone, than tell one bureaucrat to find a new job.

CSE is preparing to fight against tax increases wherever and whenever they occur. We believe American families are massively overtaxed already, and it’s outrageous to take even more money to support state bureaucracies that became bloated during the boom years of the 1990s. But, preventing higher taxes depends on taxpayers getting involved and telling the politicians “ENOUGH ALREADY!” That’s what Citizens for a Sound Economy is all about. If you’d like to join the fight for lower taxes, less government, and more freedom, call us toll-free at 1-888-JOIN-CSE.