WSJ: State Governments Are Flush
The financial conditions of the various state governments have mostly improved, and in a very big way. They should be sending thank-you notes to President Bush and the Republican Congress for spurring the economy into prosperity:
As usual, strong profits on Wall Street are playing a central role in New York’s recovery. California cites higher-than-expected corporate tax revenues. In Connecticut, where a $524 million surplus is anticipated, officials point to capital gains on stock sales as the biggest factor. And in Virginia — where Democratic Governor Mark Warner pled poverty two years ago in order to push through a record tax increase — a hefty $1.1 billion surplus has been projected. Even some Republican governors, like Mitch Daniels of Indiana, found themselves pushing prematurely for tax increases. For the first three quarters of 2005, Indiana’s state tax receipts are up 6.3%.
In fact, the state budget “crisis” that we’ve been reading about for the past few years always had more to do with overspending than revenue shortfalls. Using Census data, Chris Edwards of the Cato Institute calculates that state revenues did drop 3.2% in 2002, but they rebounded by 4.2% the next year. States saw revenue growth of 8.7% in 2004 and an estimated 8% last year. In other words, if budgets weren’t being balanced, it’s not because the taxpayers weren’t doing their part.
State politicians will claim these newfound riches shouldn’t be returned to taxpayers because of rising Medicaid costs. And it’s certainly true that that program is claiming a higher and higher percentage of state budgets. But that’s not an argument against tax cuts; it’s an argument for Medicaid reform. And history shows that, given their druthers, state politicians would much rather use boom cycles to placate special interests by expanding entitlements rather than reforming them.
Voters might also keep all this in mind during the next economic downturn, when their state politicians come asking for more money to tackle problems that they lacked the discipline to address when their coffers were full.
They’re so good at spending it when times are good, and whining about tax increases when times aren’t so good, all the while gobbling up an ever-larger share of everyone’s income. How many workers are getting 8% raises this year? And how many families in the private sector blow $11,000 for health care on each and every family member, as New York does in its entire Medicaid system ($44 billion for 4 million eligible people)?
One example: Through the first five months (July through November) of the 2005-2006 fiscal year, state revenues in Ohio are $723 million, or 7.8%, ahead of the same period in 2004-2005 (go to The Ohio Office of Budget and Management’s Monthly Financial Report page, click on December 10’s PDF link, and look near the bottom of Page 14). If the economy keeps cruising along at a 3.5% or so GDP growth rate, the state may collect over $1.7 billion more in fiscal 2006 than it did in fiscal 2005.
With the states so flush, would it be unreasonable to ask why these windfalls (or, in Ohio’s case, at least half, after considering inflation) shouldn’t be returned to taxpayers?
