Table 3
Taxes and State Economic Performance, 19902005
Top 10 Tax-Cutting
50-State
Top 10 Tax-Hiking
States
Average
States
19902005 revenue increases
(per $1,000 of personal income)
($5.76)
$3.10
$19.17
Employment, 19902005
25.3%
21.9%
19.6%
Personal income, 19902005
118.7%
110.9%
106.0%
Population growth, 19902005
21.0%
19.2%
17.5%
Source: Author's calculations based on data from the Census Bureau, the Bureau of Economic Analysis,
and the Department of Labor.
roughly 8 percentage points faster than the
ments to the methodology have been made
national average, while the tax-hiking states
and variables added to improve the results.
saw below-average personal income growth.
Note, however, that there are several unavoid-
able problems in grading the fiscal perfor-
Population Growth
mance of the governors.
Citizens voted with their feet and migrated
First, the report card cannot entirely isolate
to the tax-cutting states in great numbers.
the impact of the governors from the fiscal
Population growth averaged 21 percent in tax-
decisions of state legislatures. In most states,
cutting states but only 17 percent in tax-hik-
the legislature has at least an equal influence
ing states. Again, growth in this variable in the
on budget outcomes. In addition, if a state leg-
tax-cutting states outstripped the national
islature is controlled by a different party, then
average.
a governor's control over fiscal policy is usual-
ly diminished. (Appendix D summarizes the
A comparison of
fiscal record of each governor and notes
Conclusion
whether the legislature is of the same party.)
the economic
To isolate governors' performance, they are
performance of
graded not just on outcomes but also on tax
Now that states have moved back toward
the 10 states that
and spending proposals contained in their
healthy revenue growth and more stable
official budget recommendations.
reserve funds, the temptation will be to start
increased taxes
Second, some states grant governors more
ratcheting up spending again. But spending
the most with
authority over the budget process than other
budget surpluses is precisely what caused the
the economic
states. For example, most governors are
state fiscal mess of 20002003 in the first
empowered with a line-item veto allowing
place. The lesson of the last 20 years is that
performance of
them to unilaterally reduce spending. But in
governors can't tax and spend their way to
the 10 states that
nine states governors do not have that power.
prosperity; they should stop trying. How gov-
Moreover, the supermajority voting require-
ernors handle the growing budget surpluses
cut taxes the most
ment to override a veto varies among states.
will influence how well they do on the next
suggests that
Those factors give the governors different lev-
report card in 2008.
when states
els of budget control that are not accounted
for in this study.
reduce taxes they
Appendix A:
States have other unique features that are
improve their
Report Card Caveats
difficult to control for. In Hawaii, most school
funding comes from the state not local gov-
relative economic
ernments, which inflates Hawaii's spending
This is the eighth Cato report card on the
performance.
figures. Alaska and several other states receive
governors. This year some further refine-
8