The Tax Man Cometh

September 16, 2008
Physician's Money Digest, March31 2003, Volume 10, Issue 6

Even on an ordinary weekend, Washington is never short of politicos whining about the irresponsibility of tax cuts while holding out their hands for more federal dollars. But if the Beltway's tax-and-spend meter is now clicking as wildly as a Geiger counter at Chernobyl, there's a good explanation: The arrival of delegates for the winter meeting of the National Governors Association (NGA) that begins tomorrow [February 24].

You might think governors would be the last folks to want money taken out of their local economies by Uncle Sam. And there are indeed governors, such as Florida's Jeb Bush and Colorado's Bill Owens, who understand that dollars are not spontaneously generated in Washington. But the prevailing attitude is best reflected in a draft NGA resolution declaring that the governors believe "the most powerful immediate economic stimulus for the nation's ailing economy is to provide fiscal assistance to the states."

Now, the states' budget crunch is real, but these deficits didn't just happen. Today, governors are careful to furrow their brows as they intone about revenue "shortfalls." But even the most cursory glance at the numbers indicates that this is a problem that properly belongs under the heading of what Ronald Reagan used to call Spending Money Like Drunken Sailors—if that isn't unfair to drunken sailors.

Yes, virtually all states are feeling the pinch of a sluggish economy. But the accompanying table illustrates that the states suffering most are, not uncoincidentally, the same ones that spent the last decade spending well beyond their means. As a recent Cato Institute analysis noted, if the states had simply limited spending increases to inflation plus population growth, they would now be enjoying a surplus of nearly $100 billion instead of starting at a combined deficit of $68.5 billion for the coming year.

It's all making for some strange political turnabouts, defying traditional Republican-Democratic distinctions. For example, New Mexico's Bill Richardson, a former Clinton official, just signed into law a bipartisan bill slashing income and capital gains taxes.

But Sonny Perdue, the newly elected governor of Georgia—the first Republican since Reconstruction—not only hitched his star to a huge tax hike, he's now defending himself by taking the Gipper's name in vain. Of course, the Mr. Reagan he meant was the governor who signed a California tax increase in 1966, not the president who (having learned his lesson) set off the largest economic expansion we've ever known by cutting everyone's taxes in the 1980s.

Alas, Governor Perdue has plenty of company. While Gray Davis and Bob Holden are doing their best to uphold the caricature of the tax-and-spend Democrat in California and Missouri, Republicans are in hot pursuit. In Connecticut the same John Rowland who was first elected 8 years ago on a promise to abolish the income tax has endorsed a "millionaire's" tax. Other GOP tax pushes come from Ohio's Bob Taft, Arkansas's Mike Huckabee, and Nevada's Kenny Guinn. It doesn't help that the vice chairman of the NGA is Idaho's Dirk Kempthorne, another Republican beating the drums for a humongous tax increase.

As federalists ourselves, we believe the states have a legitimate complaint about unfounded federal mandates. Medicaid is the states' number-1 budget buster. But that's why the governors would do far more good pushing President Bush's Medicaid reform, which would eliminate some mandates and let the states experiment with health care solutions.

Instead, the permanent NGA staff spends its time pooh-poohing the president's tax cut, plumping for an Internet sales tax, or calling for more federal handouts. Those handouts, we'd add, would only reward those states that were the most irresponsible spenders during the 1990's boom.

The fundamental point here is the one the governors all seem to forget when they visit Capitol Hill: That any time you cut taxes at the federal level, you're sending it back to the states, albeit to individuals who create wealth. We just never thought we'd see the day when Washington would be explaining that to Boise and not the other way around.

Reprinted with permission of the Wall Street Journal copyright 2003 Dow Jones & Company, Inc. All rights reserved.