NCPA - National Center for Policy Analysis

Belt-Tightening States Can Raise Taxes -- Or Cut Costs

November 1, 2002

Successful gubernatorial candidates in this election face the choice of spending cuts or tax hikes next year, say observers.

  • States collectively faced some $50 billion in budget shortfalls entering this current fiscal year.
  • California alone may be facing another $12 billion-plus deficit, New York's revenue shortfall has been estimated as high as $10 billion, while the gap in Texas's next two-year budget could be anywhere from $5 billion to $12 billion.
  • Since state and local governments account for 12 percent of U.S. economic output, the cost of fixing states' problems could ripple through the entire national economy -- delaying recovery.
  • The problem is that growth in tax receipts has remained anemic, while expensive services such as Medicaid and public education are experiencing higher enrollment and higher costs.

To make ends meet, some governors may have to consider selling off state property, consolidating state agencies and privatizing certain services. Otherwise, further rounds of tax increases may be in store, or cuts in usually sacrosanct education programs.

Source: Andrew Caffrey and Russell Gold, "Governor, Get a Grip!" Wall Street Journal, November 1, 2002.

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