This is an ongoing debate regarding the Starve the Beast theory of federal government finance – do reductions in revenues lead to less spending and increases in revenues to more spending?
A casual look at data in a new report by the National Association of State Budget Officers indicates a clear Starve the Beast pattern at the state level. (See Table 2 on page 3.)
In years when revenue growth was slow – early 1980s, early 1990s, and early 2000s – state legislators moderated their spending increases (they are generally required to balance their budgets each year). In years when the economy was booming – late 1980s, late 1990s, and now – revenues flooded into state coffers and legislators spent with abandon. To correct for the excessive budget expansions we see during booms, there is a movement in many states to impose tighter caps on overall budget growth so that revenue booms trigger automatic tax reductions.
By the way, with state budget increases of 6.5 percent last year and 7.6 percent this year, isn’t it time state politicians started returning some of the current revenue gusher to the people through major tax cuts?