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Guess who's to blame? State budgets are in crisis from California to New York.

The American Enterprise

| October 01, 2003 | Hassett, Kevin | COPYRIGHT 2003 The American Enterprise, a national magazine of politics, business and culture (TEAmag.com). This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

A revolution is brewing in California, sparked by an annual state budget that is a stunning $38 billion out of balance. States like Connecticut, New Jersey, New York, and Oregon face similar, though lesser, fiscal crises. What happened to state budgets in these places? And who is to blame?

Democratic Party officials have tried hard to "nationalize" this problem, and have received assistance in this regard from much of the national media. If you listen to the Democrats' line of argument, today's state fiscal crisis was caused by coldhearted Republicans who choose tax cuts over "adequate" funding of "essential" state programs. Without prospect of federal help (thanks to George Bush's tax cutting parsimony), state taxes must now be increased to support "necessary" services. And if taxes are not increased fast enough, terrible cuts in spending must also be contemplated. This is not only cruel to the "vulnerable" but also puts the entire economy at risk. The negative drag from state spending cuts may hurl us into another recession, the New York Times argued recently.

This may sound plausible enough. But almost nothing about it is true.

The California story is actually quite straightforward. During the 1990s boom years, Governor Gray Davis found his state revenues surging along with the stock market. He responded by jacking up government spending almost 40 percent. When the stock market and economy softened, revenues were no longer sufficient to maintain that sharply higher level of spending. The gigantic fiscal crisis that ensued created a media frenzy and an historic vote on recalling the governor.

As for the idea that state spending is being slashed--it's true that legislators in many places are having to tighten their belts--but it is only huge planned increases that are being cut. Even after all of this year's "cuts," state government spending will be 2 percent higher in the current fiscal year than it was in the previous year. If total spending is still rising, how can Democratic National Committee chairman Terry McAuliffe and the New York Times claim this is going to drag down our economy? Could politics be involved?

To help uncover whether today's state budget crisis is more attributable to "irresponsible Republican tax cuts" or "irresponsible Democratic spending," I recently analyzed individual state budgets in light of those states' political complexion. I began by dividing the states into those that voted for President Bush, which I labeled as predominantly Republican, and those that voted for Al Gore, which I designated Democratic.

Separated out that way, the state budget data tell a striking story. Though the total population of Bush and Gore states are almost identical, the states that voted Democratic account for fully 70 percent of today's state deficits; Republican states ring up only 30 percent of the total. And of the ten states with the largest per capita budget deficits every single one voted Democratic in the last election. (Alaska, which finances its government from oil revenues rather than taxes on its citizens, was excluded from my analysis.)

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