NCPA - National Center for Policy Analysis

What Will States Do If Revenues Shrink?

December 13, 2000

During the booming 1990s, state lawmakers had the luxury of spending the taxpayers' money pretty freely. After all, revenues were spilling out of state treasuries.

But suddenly there are warning signs that the nation's economy may be plateauing -- or heading for a downturn. Will states reduce their outlays? Or will they sock taxpayers with new tax hikes?

  • State revenues skyrocketed 67 percent from $518 billion in 1990 to $865 in 1998.
  • Total state spending rose 48 percent between 1990 and 1998.
  • Total net tax-supported debt almost doubled to more than $200 billion during that period, according to Jeff Petry, an analyst at
  • States have historically preferred to raise taxes rather than cut spending when they get in a bind -- and many analysts don't see that pattern changing.

Some states can raise taxes without even raising rates. "Many states have cut taxes by rebating payments rather than lowering rates," Petry points out. If those states run short of cash, they simply won't offer another rebate.

Source: Charles Oliver, "State Spending Soars as Coffers Fill, But Will Slump End the Good Times?" Investor's Business Daily, December 8, 2000.


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