NCPA - National Center for Policy Analysis


January 17, 2006

Gov. Arnold Schwarzenegger (R) said California would end the fiscal year with a whopping $5.2 billion in reserves. Arkansas, Florida, Maryland, Virginia and about three dozen other states are also reporting revenue above forecasts. According to the National Conference of State Legislatures, states have closed an aggregate $264 billion budget gap since 2001.

Although the states asked for a $20 billion giveaway to offset what they thought would be "lost" revenue from the Bush tax cuts, the revenue data shows that the tax cuts and the economic expansion that has followed have been a windfall for state coffers, says the Wall Street Journal.


  • More workers and rising incomes translate into more taxable income for states.
  • Because most states tax investment income too, state budgets are also benefiting from an increase in corporate dividend payouts.
  • 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.

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, says the Journal.

Voters should 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, says the Journal.

Source: Editorial, "States of Plenty," Wall Street Journal, January 11, 2006.

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