Democratic Governors Enact Billions In Higher Taxes, While Republicans Enact Billions In Tax Relief
Democratic Governors Enact Billions In Higher Taxes, While Republicans Enact Billions In Tax Relief
May 16, 2014Forbes - With state governments across the country under unified partisan control to the greatest degree in decades, this space has frequently covered how this dynamic has resulted in blue and red states moving in completely opposite directions in terms of public policy. Since the beginning of 2011, Democrat-controlled states have been busy raising taxes and growing the size of government, while Republican-controlled states have been cutting taxes and reducing or streamlining regulations.
This week, Americans for Tax Reform (ATR) tabulated the total dollar
amount of tax increases signed into law by Democratic governors since
2011, with that amount coming to $58 billion in higher taxes
for blue state residents. This stands in stark contrast with what
Republican governors have done with their tax codes during that same
period. As ATR pointed out in a report released at the end of 2013,
Republican governors have cut taxes by more than $38 billion since 2011. Since that report was released, an additional billion dollars in tax relief has been signed into law by Wisconsin Gov. Scott Walker (R) and Florida Gov. Rick Scott (R).
While it will be a few years before sufficient data from the states is available to draw decisive conclusions as to which approach works best, early indicators suggest that the red state model is superior. The average unemployment rate in the 13 states under total Democrat control is 6.3 percent, which is 12.5 percent higher than the 5.6 percent average unemployment rate of the 24 states under unified GOP control.
In the past month, two prominent indices of state economic competitiveness were released, and the results do not bode well for proponents of the blue state model.
Site Selection Magazine just released its annual ranking of the most economically competitive states in the country. Of the top ten most competitive states according to Site Selection, eight have Republicans residing in the governor’s mansion and controlling both chambers of the state legislature.
Chief Executive Magazine just released its tenth annual report on the best and worst places to do business, based on a survey of CEOs. Of Chief Executive Magazine’s ten best states to do business, all of them have GOP governors and Republicans also control both chambers of the state legislature in nine of the top ten. Wisconsin stands out in that survey, having rocketed from the 41st best state to do business five years ago, to the 14th best in 2014, thanks in large part to the labor and entitlement reforms, along with the $2 billion in tax relief championed and enacted by Gov. Scott Walker.
The Democratic Governors Association won’t be touting it this election cycle, but seven of the ten worst states to do business according to the aforementioned CEO survey have Democratic governors, and six of the ten worst states to do business have Democrats running both the executive branch and the entire state legislature.
The non-partisan Tax Foundation puts out the highly regarded annual State Business Tax Climate Index. Of the ten states with the best business tax climates, seven are completely controlled by Republicans.
Meanwhile, half of the ten states with the worst business tax climates are totally controlled by Democrats. Among the other five states with the worst business tax climates, three are under split partisan control and two are states that the GOP took control of in 2010 and are still busy cleaning up the fiscal mess left behind.
Despite what left-of-center critics contend, states with better business tax climates on the Tax Foundation’s index economically outperform other states. Bureau of Economic Analysis data shows that the economies of the five states that score the best on the Tax Foundation’s index grew by 66.9% on average in the ten years from 2002 to 2012. Meanwhile, the other five states with the worst business tax climates saw average economic growth of only 39.7%.
Much of the focus of the 2014 election cycle has been and will continue to be on the battle for the control of the U.S. Senate. While that matter is incredibly important, so too are the choices that voters will make in the 36 gubernatorial races on the ballot this fall, as well as the balance of power in state legislatures across the country.
The good news is that the parties have sent a clear message to voters over the last several years as to which direction they want to take states. It’s now up to voters to decide which approach they prefer.
Patrick Gleason is director of state affairs at Americans for Tax Reform. Follow Patrick on Twitter @PatrickMGleason
What the rise of Republican governors tells us about the GOP's future
Steven Malanga - Shortly after Barack Obama won reelection in November, New Jersey Governor Chris Christie pointed out that Republicans’ cloudy political prospects had a bright silver lining.
“One of the reasons you have 30 Republican governors in America, and why we’re the only organization to add Republican strength,” Christie said, “is because people see us getting things done.”Christie’s stance countered most of the elite postelection commentary, which gleefully pronounced the Republican Party’s political irrelevance. But the governor was right.
Since Obama first took office in 2008, Republicans have picked up a net nine governorships, bringing their total to 30 states, which hold nearly 184 million Americans. In 24 of those states, containing 157 million Americans, Republicans also control the legislatures.
Democrats boast similar power in just 12 states, with a population of 100 million. Even Republicans’ unimpressive national showing last November didn’t reverse their state-level momentum.
It’s becoming clear that the Republican governors plan to lead in ways consistent with the reform agendas that got them elected.
The next-wave Republican governors have ignored proclamations that President Obama’s victories have vaporized fiscal conservatism and opened a new era of American big government.
At a time when Washington policymakers seem paralyzed by our toughest problems, these state-level revolutionaries have restrained government growth and radically reformed local tax codes.
They’ve made their states friendlier to business, reshaped government-employee pension systems to reduce state debt, and restrained the power of public-sector unions over state and local budgets. Some have even proposed eliminating income and corporate taxes.
Christie, whose stock has risen in New Jersey as he heads into a reelection battle this year, believes that the next national leadership of the Republican Party will emerge from the ranks of its effective governors.
“I don’t think this is a core philosophical examination we have to go through,” he has observed. “What this is about is doing our jobs.”Few observers predicted this Republican resurgence back in 2008, when elections not only handed the Democrats the White House and Congress but also cemented their control of 29 governors’ mansions.
Even as the country seemed to lurch leftward, however, state voters began to revolt against Democratic governors’ tax increases.
In 2009, Christie defeated Democratic incumbent Jon Corzine with a platform that rejected new taxes. Over the previous eight years, Corzine and his Democratic predecessor Jim McGreevey had raised taxes by more than $5 billion.
McGreevey boosted taxes and fees $3.6 billion between 2002 and 2004 alone, raising everything from income taxes to levies on home sales.
Corzine followed in 2006 with his own $1.1 billion sales-tax hike. Three years later, he slapped a temporary income-tax surcharge on households making more than $400,000 a year, part of another proposed $1 billion in new taxes. But actual tax collections imploded, leaving Christie with a $4 billion budget deficit when he took office in 2010.
Christie ran enormous political risks in trying to shrink that deficit. Despite discontent over the high taxes, polls showed that voters wanted higher levies on the rich, so that the state could continue a popular program of property-tax rebates for homeowners. And though the voters favored winning concessions from government workers, they also wanted the state to keep subsidizing public schools richly.
Christie disagreed.
1. He chose not to renew the surcharge on high earners and slashed aid to municipalities.When homeowners complained, Christie urged them to vote against the expensive municipal and school budgets that were driving their ever-rising property taxes. Voters responded, defeating nearly 60 percent of the school budgets proposed in 2010. Christie’s reforms slashed state spending by nearly 9 percent and balanced the state budget without new taxes.
2. He also reduced the property-tax rebates; after all, property taxes are imposed by localities, so the rebates amounted to a state subsidy that let cities and towns avoid making tough budget decisions.
3. Christie then pressed the legislature to pass reforms that restrained municipal spending, including a cap on annual property-tax increases.Christie’s favorability rating was just 44 percent after his first budget passed, but as Jerseyans watched his strategy play out, his popularity grew.
4. He also signed off on roughly $347 million in business tax cuts, though he has yet to find the revenues to make good on his pledge to lower Jersey’s income tax.
Even before his effective and sympathetic response to Superstorm Sandy, more than 50 percent of voters approved of the job he was doing; since then, his popularity has soared.
“Despite the challenges that Sandy presents for our economy, I will not let New Jersey go back to our old ways of wasteful spending and rising taxes,” Christie recently announced. “We will deal with our problems, but we will continue to do so by protecting the hard-earned money of all New Jerseyans first and foremost.”A year after Christie’s victory came the 2010 elections, when 26 governorships were up for grabs. Republicans wrested 11 of them from Democrats and lost only five, an impressive tally.
Perhaps the most ambitious of the 2010 crop of reform governors is Michigan’s Rick Snyder, a former venture capitalist with no previous experience in office.
Snyder initially received less national attention than Christie or Wisconsin’s Scott Walker, whose battle with government unions grabbed headlines throughout 2011.
Perhaps Snyder’s post-partisan image was what kept him off the national press’s radar for so long: he ran as a wonk who would use his business acumen to fix the state’s finances.
In his first budget, Snyder sought to close a $1.5 billion deficit while pushing—successfully, as it turned out—to get rid of the hated Michigan Business Tax.
The MBT didn’t just tax businesses’ profits, as most corporate taxes do; it taxed their revenues as well, meaning that firms had to pay even when they weren’t making money.
Politicians and policy experts in Michigan had long acknowledged that the MBT was one of the nation’s worst corporate taxes and that it drove away business. But it brought the state $1.7 billion in yearly revenue that no previous governor had wanted to forgo.
Snyder’s tax-reform plan was audacious. To make up for the lost MBT revenues, he proposed a flat corporate levy; jettisoning $400 million in targeted corporate tax credits, which had tried to keep particular companies in the state; and (most controversially) taxing the pensions of all Michigan residents.
Michigan, Snyder observed, was one of only three states that exempted pensions from income tax. The anomaly had originated in the mid-sixties, when state pols and public-sector unions reached a deal to exclude government pensions from taxes and public anger over the favoritism led to a broadened exemption.
Snyder’s call to tax pensions understandably upset retirees and government-worker groups, who threatened to try to recall the governor. But he persisted, and the recall idea fizzled. The Michigan legislature eventually agreed with him and reshaped the state’s tax code. The new arrangement moved Michigan’s corporate levy from next-to-worst in the Tax Foundation’s national rankings to 18th best.
“The Wicked Witch is done,” Snyder said.Nor was that the end of Snyder’s reform drive. Last year, he lowered Michigan’s personal income-tax rate. And now he’s seeking to eliminate the state’s so-called personal property tax, which is actually an outdated tax on business equipment. Snyder’s changes are “unshackling the state from its obsolete economic past and positioning it for new prosperity,” noted the Detroit News.
In Kansas, meanwhile, Governor Sam Brownback is pushing to extend a tax-reform program. Brownback roared into office in 2011 proposing to lower income-tax rates and to regain the lost revenue by capping some popular tax expenditures, like the mortgage-interest deduction.
Republicans in the state legislature, balking at ending the popular items, passed a tax-cut package without them, lowering the state’s income-tax rate from 6.45 percent to 4.9 percent.
“The governor said early on… ‘Go bold.’ And we did,” said Mike O’Neal, Speaker of the Kansas House of Representatives.Brownback paid for the tax cut in part by keeping state spending flat and by using increased revenues from a modest upturn in the state economy. He’s now hoping to end enough tax-code deductions and loopholes to save Kansas more than $1 billion in revenue.
States are laboratories of democracy, in Justice Louis Brandeis’s famous formulation, and the very different experiments that their Republican and Democratic governors conduct over the next few years—especially on issues that go to the heart of economic competitiveness—will be eye-opening.
In the months since President Obama’s reelection, it’s becoming clear that the Republican governors plan to lead in ways consistent with the reform agendas that got them elected. How they fare may steer the Republican Party’s course more decisively than any soul-searching in Washington does.
Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute for Policy Research. His latest book is "Shakedown: The Continuing Conspiracy Against the American Taxpayer."
Related:
Governors of States by Party
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