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Lawmakers Ready to Bet Bottom Dollar Sun Will Come Out Tomorrow (1999)

As state and local budget deliberations get rolling in earnest this year, lawmakers across the nation seem poised to use record surpluses and unexpectedly high revenue forecasts to justify extending a recent wave of massive tax cuts. Even though the U.S. economy (along with that of almost every state) is enjoying the fruits of the longest peacetime recovery in our history, the prevailing optimism may be somewhat misplaced. Politicians should take heed that the current economic environment cannot last forever, and that they already may have cut taxes by more than enough.

Emboldened by a national economy that prompted soaring income tax collections and lower-than-expected spending requirements for social programs, the states, on balance, have cut taxes in each of the past five years. In 1998 alone, perhaps encouraged by the promise of tobacco settlement revenues, the states cut taxes by more than $3.8 billion.

Proposals to continue this reckless tax cutting trend are everywhere in 1999. Thirty-two state legislatures report that they are likely to consider tax cuts this year. And some of these proposals carry hefty price tags. Minnesota is considering a tax cut and rebate plan that would cost in excess of $1 billion, and Texas is talking about $2.7 billion worth of property and other tax cuts.

The experience of New York state provides clear evidence why this strategy is fraught with risk. Despite continuing economic growth, $5 billion worth of multi-year tax cuts enacted in previous years have left the state with a $2.5 billion budget gap to close in the coming fiscal year.

Furthermore, lawmakers focused almost entirely on cutting taxes have failed to budget for rising spending requirements for certain public services and infrastructure investments. Because current surpluses could dry up rapidly if economic growth were to slow unexpectedly -- or if Congress were to enact pending proposals to cut grants to state and local governments or recoup tobacco settlement revenues -- now is the time to consider sharing the spoils with public employees who have seen their health care costs rise and their incomes remain stagnant. Further tax cuts, though politically appealing, could end up hurting taxpayers tomorrow much more than they might help today.

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