State governments are in a fiscal crisis not entirely of their own making but certainly exacerbated by their extravagance. According to recent estimates, states face combined budget deficits of $100 billion during the rest of this year and next, due in the main to a stagnant economy. But that is no excuse to raise taxes.
Governors and state legislatures are casting their revenue nets widely, all the way from raising taxes on cigarettes and gasoline to expanding gambling and imposing new taxes on Internet sales to people who don't even live inside the state's borders. It is particularly disappointing to see Republican governors, who should know better, in the forefront of this latest assault on hardworking taxpayers.
Not a week goes by that one doesn't hear governors pleading with Washington to bail them out. When that fails, they insist they have no alternative but to raise taxes and further pollute our society with a slot machine on every corner. Nonsense.
The primary cause of the fiscal crisis in America at all levels is a weak economy, but the equally relevant cause is fiscal profligacy that has been accumulating for more than 15 years. From 1986 to 2000, state governments were on a spending binge of enormous proportion. According to a report by the National Federation of Independent Businesses, inflation-adjusted, per-capita state expenditures during that period grew by more than 40 percent. Even with today's weak economy, research by Club for Growth President Stephen Moore and his associates concludes that states currently would be $100 billion in the black if they had just restrained spending growth during the 1990s to the same rate as inflation plus the rate of population growth.
Extravagant spending increases when times were good put a time bomb in state budgets that exploded with a bang when a sinking economy caused revenues to fall and entitlement spending to increase. Raising taxes cannot defuse that time bomb. The key to resolving state fiscal problems is to revive economic growth, and the key to doing this lies with the kinds of tax reforms and tax rate reductions President Bush has proposed.