Tags: State | Budgets | Boosted | Bush | Tax | Cuts

State Budgets Boosted by Bush Tax Cuts

Wednesday, 21 December 2005 12:00 AM

After battling red ink for the past few years, state officials are watching their revenues increase to create budget surpluses, a development some analysts attribute to the financial growth caused by the tax cuts signed into law by President Bush in 2003.

According to the most recent Fiscal Survey of States released by the National Association of State Budget Officers (NASBO), only three states had to scale back their originally budgeted amounts in 2005 when revenues failed to meet projections.

But that's far short of the number of states - 37 - that had to do the same thing during the 2003 and 2004 fiscal years combined. And whereas the three states in 2005 revised their budgets downward by $634.6 million, the 37 states in the previous two years had to find $14.5 billion in savings.

Dan Mitchell, senior fellow at the conservative Heritage Foundation, told Cybercast News Service that "there's no question state government finances are very, very closely tied to the health of the national economy."

Forty-two states ended up collecting more revenue than they expected in the fiscal year that ended in June, the NASBO report states. Alabama, Maryland, Michigan, New Jersey and South Dakota saw their revenue projections match the FY 2005 amount budgeted, and only in three states - Indiana, Missouri and Washington - did the revenue come in short of the amount originally anticipated in fiscal year 2005.

The good news is expected to continue through the 2006 fiscal year, when proposed state budgets anticipate an average 5.2 percent increase in revenue and spending growth of about 3.8 percent.

One of the success stories of the past few years is Massachusetts. When Republican Gov. Mitt Romney came into office in January 2003, the state had a budget deficit of about $3 billion. Currently, Romney and the Democratic legislature expect to end the 2006 fiscal year with an estimated surplus of $850 million and a "rainy day" fund of $1.7 billion.

Across the country, Montana is using a record overflow of about $300 million to give its citizens property tax relief, while New Mexico is using part of its projected $1 billion surplus to build a 21st-century airport to launch passengers and cargo on suborbital spaceflights.

There's no question, Mitchell said, that the 2003 federal tax cut passed by Congress and signed by President Bush "had a very good effect on the economy." State governments, he said, "are benefiting immensely, albeit indirectly," from the $350 billion tax relief package.

"Ever since the 2003 tax cut, we've basically had 4 percent economic growth," Mitchell said. "That's very good by global standards. Countries like France and Germany are happy to get 1.5 percent growth, and we've had 4 percent growth for a multi-year period."

Since many states tie their tax codes to the federal definition of income, the Bush tax cuts produced "an inadvertent tax cut at the state level," Mitchell said. "But there's no question that the effect of that is small compared with that of faster economic growth."

Another reason for the turnaround in the states' financial condition is the fact that most of them have a balanced budget amendment, according to Harry Zeeve, national field director for the bipartisan Concord Coalition.

While the amendment has forced many state lawmakers to make tough choices when planning their budgets, Zeeve told Cybercast News Service that it has also prevented governors and legislatures from spending too much during tough financial times.

However, a report produced in December by the liberal Center on Budget and Policy Priorities (CBPP) casts a darker tone on state finances and warns that state revenues and services remain below pre-recession levels.

"Despite recent reports of rapid state revenue growth and surpluses in some states, most states continue to feel the after-effects of the fiscal crisis" that began during the 2000 fiscal year, according to report authors Elizabeth McNichol and Iris Lav.

Over the past few years, "states cut back on services, drew down rainy day funds, enacted temporary revenues and used an array of fiscal gimmicks," McNichol and Lav said. "Analysis shows that state revenues would have to grow by more than 9 percent per year between now and 2008 in order to generate enough funds simply to restore the level of services that prevailed in fiscal year 2000."

The CBPP report also dismissed reports of state surpluses since, according to the group, such figures "reflect only the difference between estimated and actual revenue collections.

"Understandably, states were cautious in their current budgets, and assumed relatively low revenue growth," the CBPP stated.

Nevertheless, Mitchell noted that state officials have just as much trouble controlling spending as their federal counterparts. "The notion that there's been any fiscal responsibility at the state level is laughably inaccurate," he said.

"I suppose that if there's a dark side to good tax policy on the national level, it's that states wind up collecting a lot more tax money, and they wind up squandering it," Mitchell said.

Copyright 2005


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After battling red ink for the past few years, state officials are watching their revenues increase to create budget surpluses, a development some analysts attribute to the financial growth caused by the tax cuts signed into law by President Bush in 2003. According to the...
Wednesday, 21 December 2005 12:00 AM
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