<<  <  >  >>

Page 10

the opposite policy.  The governors elected in 1993, 1994,

and 1996 have led the tax-cutting parade, enacting numerous

supply-side tax rate reductions.  In each of the past three

years, more than half the states have cut taxes.  Most of

that tax-cutting activity has consisted of chopping anti-

competitive business and personal income tax rates, as

states have become more sensitive to improving interstate

tax competitiveness.  Over the same time period, no states

passed major tax increases and only two raised tax rates.

This year about half of the governors recommended fur-

ther tax cuts in their budget proposals for the coming fis-

cal year, including several recommendations for further sup-

ply-side rate reductions.  Most ambitious of all was a

proposal by Oklahoma's Frank Keating to cut the top state

income tax rate in half, from 7 percent today to 3.5 percent

by 2002. Ben Cayetano of Hawaii proposed cutting his state's

sky-high personal income tax rates by 15 percent over sev-

eral years.  Engler of Michigan proposed phasing in a reduc-

tion of from 4.4 to 3.9 percent in the top income tax rate.

Governor Cellucci of Massachusetts proposed reducing the

state's personal income tax rate from 5.95 percent to 5 per-

cent, phased in over three years.  And Governor Pataki has

continued his crusade to make New York's record-high tax

system more pro-business and pro-investment by cutting the

corporate income tax by 1.5 percentage points.  Governor

Janklow of South Dakota, one of the nine states that bene-

fits from having no income tax, has proposed a second large

property tax cut.  Governors Gilmore of Virginia, Wilson of

California, and Lincoln Almond of Rhode Island have started

to phase out the car tax in their states.

Comparing Tax-Raising and Tax-Cutting States in the 1990s

The wide variety of tax changes enacted in the states

so far in the 1990s offers a useful laboratory for exploring

the effects of tax policy on relative state economic per-

formance.  Some states have significantly raised their state

and local tax burden relative to the national average; oth-

ers--particularly in the Northeast--have improved their tax

position by slashing their overall tax burdens.

That raises the age-old issue of whether tax changes

affect state economic growth rates.  To address that issue,

we compared, in a nonscientific way, the economic and fiscal

results in the 10 states that increased taxes the most with

the results in the 10 states that cut taxes the most over

Table 2

Taxes and State Economic Performance in the 1990s