Those who oppose a state income tax cut are claiming a worry about future budget deficits. They would be more credible if they were proposing to save the money higher rates would bring in by depositing it in the state's rainy day fund. Instead, they propose that it be spent.
Higher spending, of course, leads to deficits as readily as lower revenues. More readily, in fact, according to a study by researchers for the Urban League and the Brookings Institution. The study ( State Rainy Day Funds and the State Budget Crisis of 2002-?) looked at the state budget deficits caused by the recession earlier this decade. The states that did the best, the study found, weren't those with the largest rainy day funds.
Instead, they were the states that increased spending the least leading up to the recession. And the states that increased spending the least were those that were least dependent on the income tax.
Simply put, states with little or no reliance on income taxes didn't have the artificial rush of revenues in the late 1990's to funnel into unsustainable spending. The real way to avoid future state budget deficits is to control spending and reduce reliance on the income tax -- not keep taxes high and spend it all.
Robert Robb is a columnist for the Arizona Republic . A version of this article appeared on his Arizona Republic blog.
Key Links:
-Tax Policy Center: "State Rainy Day Funds And the State Budget Crisis of 2002-?"
- Arizona Republic: "The real way to avoid state budget deficits"
