NCPA - National Center for Policy Analysis

How States are Reacting to Budget Woes

July 16, 2002

Some states -- such as Colorado -- saved for the rainy day that has arrived and are in relatively great financial shape. Colorado's budget is even in the black and taxpayers there are sharing $927 million in tax rebates, thanks to a restraint placed on government spending by a 1993 constitutional amendment called the Taxpayer Bill of Rights.

California is another story. Blithely spending while the sun shown, it has wound up with a $23 billion deficit and Democratic Gov. Gray Davis is having to scratch for revenue.

Other states lie between these polar opposites -- although more resemble California than Colorado.

  • States face a combined $40 billion to $50 billion deficit.
  • Fifteen states have enacted major tax increases in the current legislative session -- and 11 more are on the verge.
  • Tax increases by those 26 states total $14 billion -- after increasing spending over the past decade by $125 billion.
  • Among the worst tax-hike culprits are North Carolina, Kansas, Ohio and Tennessee.

A forthcoming study from the Cato Institute says that during the 1990s, the 10 states with the highest tax burden grew at half the rate of the 10 states with the lowest taxes. Personal income grew by 40 percent in the low-tax states, but by only 25 percent in high-tax states.

Job growth was 28 percent in the low-tax states, compared to 13 percent in the high-tax states.

Source: Editorial, "States of Prosperity (Or Not)," Wall Street Journal, July 16, 2002.


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