Verdict from the states: When in surplus, cut taxes!

Over the past year, the states have been sending a powerful message to the GOP Congress and to President Clinton: When faced with a budget surplus, give the money back to the people.

When Iowa Republican Gov. Terry Branstad, for example, heard that the state's budget would be in the black, he decided to give some of that money back to the people who earned it. In 1997, at Branstad's urging, the Iowa legislature passed a 10% across-the-board income tax cut.

Last week. Branstad announced that more tax cuts would be forthcoming. On January 13, in his state of the state address, he laid out a plan to reduce pension and capital gains taxes by $66 million.

Branstad is not alone among governors in his tax-cutting fervor. According to the Center for the Study of the States, 34 states slashed taxes of various kinds in 1997, while only 14 increased taxes. So far, according to the National Conference of State Legislatures (NCSL), at least 18 states have signaled they plan to cut taxes again in 1998.

To date, only New Mexico, Louisiana, Utah and New Jersey have proposed a tax increase of some kind for 1998.

The reasons for the tax cut surge is that many states are finding themselves in good to excellent fiscal shape. A strong national economy (GDP growth for the first nine months of 1997 was 3.5%) and the fact that many states started the year with modest estimates of revenue growth, left all states, with the exception of Hawaii and South Dakota, with revenues higher than expenditures in fiscal 1997.

Of the 34 states that reduced taxes, the study says, 22 cut personal income taxes, 9 property taxes, 9 corporate taxes and 10 sales taxes.

Moreover, a recent survey conducted by the NCSL showed that 30 states and the District of Columbia will collect higher-than-expected revenues for fiscal 1998, and will spend less on welfare programs because of low unemployment rates and drops in Medicare and Medicaid outlays.

The state tax-cut plans currently on the table differ in their size, scope and targets. Arizona, for instance, is considering an income tax cut of at least $200 million; Missourians will most likely get a property tax credit; and Gov. Frank Keating (R.) of Oklahoma is planning to reduce the sales tax on food. In Delaware, the GOP legislature wants sweeping cuts in personal income and inheritance taxes.

In Ohio, because of a state budgeting mechanism that mandates tax rebates during a budget surplus, citizens are all but guaranteed to get some money back in 1998.

In California, Republican Gov. Pete Wilson, surveying the state's economic condition, has not ruled out another tax cut. "The governor certainly hasn't been shy about proposing tax cuts, as evidenced by the cut he made last year," H.D. Palmer, assistant director for California state finance, told HuMAN EVENTS. "He has said that a potential tax cut remains high on his list." Wilson has learned a lesson since he was pummeled by conservatives in his first term for signing the largest single tax increase in the history of any state.

All eyes are now focused on a possible federal budget surplus, which, depending on continuing economic growth and how much the Republican Congress gives in to Clinton on new spending proposals, could materialize as early as next year. Washington should follow the lead of the states, where the people have already spoken: Give us our money back.

Copyright Human Events Publishing, Inc. Jan 23, 1998
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