Grading the Governors

Today, the Cato Institute released the eighth biennial report card on the nation’s governors.  It provides an index of fiscal restraint for each governor based on multiple objective measures of fiscal performance.  This year there are 23 variables on which the governors are graded – more than the 15 variables of the 2004 report card.  The methodology has been improved this time, too.  You can find a copy of the report here.

The formula for success in the report card is simple: If a governor cuts taxes and spending the most, he will get a high grade. Raise taxes and spending the most, he’ll get a low grade.

Cutting taxes is important, at least, because doing so makes a state more economically competitive.  As I report in the study, between 1990 and 2005 the rates of growth in employment and personal income in the top 10 tax-raising states were lower than the national average. The tax-cutting states, on the other hand, saw economic growth faster than the national average.

Cutting taxes is also important because it reduces the amount of private-sector resources that the government can stake a claim to.  Yet that’s only part of the story.  While this sounds elementary, it’s a key point.  The report card tries to capture how fond a governor is of big government.  There are many governors who cut merely cut taxes and think it’s enough to get them a good grade.  But if they increase spending, they really haven’t cut the size of government.  Thus, the top grades will always go to the governors who keep taxes and spending under control simultaneously.  It’s something you rarely find among most governors, Republican or Democrat.  That’s why there are always so few “A” and “B” grades in the report card.