Governors Enlist Interest Groups in Effort to Boost Taxes

The Wall Street Journal today carries a story pegging of Delaware Gov. Jack Markell's efforts to get voters to understand the state's budget shortfall. It's a strategy many governors, including Gov. Gregoire, are using as they look ahead to years of structural deficits, exacerbated by steep and prolonged revenue declines. Does this sound familiar?

"Elected officials have been patching in holes with gimmicks, tax credits, stimulus money," said Don Boyd, a senior fellow at the Rockefeller Institute. "We didn't cut spending. We put patches in. The tax revenue hasn't come back, and that still leaves a budget gap." State payrolls grew steadily until August 2008 when they hit 5.2 million. Since then, states have cut about 100,000 jobs, or 2% of the total. Private-sector payrolls have fallen by nearly six million, or more than 5%, in the same period.

While the governors say they're looking for understanding, their communications seem designed to win voter support for new revenues. At some point, they say something like this:

"I've told them come on in and convince me that's the right thing to do and that people will support it. At some point the people, I assume, don't want us to take any more cuts. I'm already hearing about 'why did you cut education?' Well there aren't any options."

The WSJ has this from the chair of the governor's economic advisory council in Connecticut:

The recession will force big changes, not all of which have materialized. "We have yet to see the public sector adapt in the way the private sector has," said Mr. Klepper-Smith, also the chief economist and director of research for DataCore Partners LLC. "We can't tax our way out of this problem..."

Boosting tax rates will simply dampen consumption, production, and investment.

Peter Callaghan writes in The News Tribune that all that federal money came with strings that make it harder to cut spending.

By taking the money, the state had to agree not to reduce spending in the areas that were being backfilled.

Meanwhile, revenues continue to plummet across the nation. A new report from the Rockefeller Institute of Government tells the story. 

For the second quarter in a row, tax revenues collected by states across the U.S. plummeted sharply in April-June 2009, according to the latest quarterly report on state revenue collections issued today by the Rockefeller Institute of Government.

When compared to the same period one year earlier, second-quarter 2009 tax revenues in the 50 states dropped a record 16.6 percent — the second consecutive quarter in which revenues fell more sharply than during any previous time on record.

A fundamental restructuring in government spending won't be simple. But it appears to be inevitable.

(cross posted at washace.com)

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