Defenders of the recent tax-cut deal between President Clinton and the GOP contend that Republicans could have achieved nothing better with their slim majority in Congress and a Democrat occupying the White House. Implicit in this defense is the fallacy that cutting taxes requires one-party rule.
Yet this excuse hardly survives a tour of the 50 states, many of which are governed by executive and legislative branches controlled by different parties. Tax cuts have rarely been as plentiful as in 1997. Even some states with notoriously high tax burdens, such as New York, Connecticut, Rhode Island, and Minnesota, gave taxpayers significant relief this year.
"The real tax-cutting action in America is not happening on Capitol Hill, but in the states," writes Steve Moore of the Cato Institute in Arthur Laffer’s economic newsletter. Although the relief offered by the federal tax cut is minuscule--a 1 percent reduction in federal taxpayer liability over five years, Moore estimates--1997 caps a three-year streak of state tax-cutting that has reduced aggregate state taxes by about 3 percent, with much more to come.
Taxpayers owe their good fortune to a variety of factors, including bulging state budget surpluses, fiscally conservative officials, and constant pressure from committed anti-tax advocates.
High Noon for High Taxes
In 1994, New York governor George Pataki campaigned on a 20 percent cut in income-tax rates. "In New York, it’s unusual for a politician to keep his word," says Ray Keating of the Coalition of New York Taxpayers. Yet the state passed the tax cut in 1995 and implemented it fully by 1997. In the 1997 legislative session, Pataki pushed through an increase in the estate-tax exemption, despite the state assembly’s liberal leadership and commanding Democratic majority.
Of course, many New York conservatives complain that the governor achieved his tax cuts at the expense of other fiscal targets, such as rent control and rising spending. But the case can be made that oppressive taxation is the heaviest drag on New York’s economy and that halting the exodus of businesses and residents from the state should be the first priority.
Every year, the Washington-based Tax Foundation calculates each state’s "tax freedom day"--the date by which the average taxpayer has earned enough income to "pay" his entire federal, state, and local tax bill for the year. Residents of Connecticut reach that date on May 22, later than those in every state but New York. Battling a state legislature that stripped all tax cuts from his budget bill, Republican governor John Rowland used the same hardball tactic that Lowell Weicker, his liberal predecessor, had used to impose a state income tax in 1991: He threatened to veto the entire budget. "If a governor threatens to veto budgets, he can get a lot of movement," observes tax activist Ken Von Kohorn. Sure enough, the legislature restored the tax cuts they had yanked from Rowland’s bill during 11th-hour negotiations.
To secure this taxpayer relief, Rowland and the Republican legislators had to allay fears that state services would suffer. But as a result of privatization and streamlining, the Rowland administration will have cut taxes by $1.3 billion in 1999 while managing to end the 1996-97 fiscal year with a budget surplus of $263 million.
On Their Own
Tax cut fever is alive and well in the South, where Democrats have a lock on most state legislatures but the governorships have been trending Republican over the past decade. Several GOP governors have shown they can bridge the partisan divide over tax cuts. Often it is the personality and cunning of the governors that drive the tax-cutting momentum. Arkansas governor Mike Huckabee, a Republican, astonished the overwhelmingly Democratic legislature when, during his 1997 State of the State address, he abruptly abandoned his complicated grocery-tax refund plan to embrace a hodge-podge of half-serious Democratic tax-cut proposals without any prior warning. "A legislature that probably wasn’t that inclined to cut taxes found themselves painted into a corner," laughs Charles Fuqua, a Republican state representative.
Fuqua’s passion for radical tax-cutting sometimes puts him at odds with Huckabee’s temperate pace. But he calls Huckabee’s strategy "masterful." The governor achieved only $100 million in income-tax relief this year, but Fuqua acknowledges that "Governor Huckabee is facing an uphill battle."
Tax-cut advocates in Mississippi credit Governor Kirk Fordice with supreme patience. Since 1992, the Republican governor has been fighting the Democratic legislature over the marriage penalty in the state income-tax code. This year he finally persuaded legislators to phase it out. "In the current environment [of divided government], the taxpayer groups in the state were happy to get any tax cuts at all," says Phillip Davis of the $45-million boon. Davis, who chairs the state group Concerned Taxpayers, attributes the modest feat to Fordice’s leadership "and his leadership alone." It was Fordice who in 1992 implemented the 98 percent rule, which forbade legislators from spending more than 98 percent of the next year’s anticipated revenues. This helped transform 1992’s $75-million deficit into a $200-million surplus in 1997.
In Rhode Island, Republican governor Lincoln Almond prevailed in a debate with the heavily Democratic legislature to win an income-tax rate cut of nearly 10 percent over the next five years. "This Democratic legislature has not been a friend to taxpayers," says Rhode Island Taxpayers president Dale Read. But pressure from outside groups such as the National Federation of Independent Business and the U.S. Chamber of Commerce forced the legislature to take some "baby steps," as Read calls these initiatives.
Joining the Party
Not all tax cutters are Republican. Ben Nelson, the populist Democratic governor of Nebraska, sired a 5 percent across-the-board income-tax cut, part of a $136-million tax-cut package passed by the unicameral, nonpartisan legislature this year. Midwestern frugality being what it is, legislators were reluctant to "give back" the budget surplus amassed during Nelson’s administration. Nelson’s income-tax reduction had failed twice in the legislature before passing this year. Again, a persistent governor won out over a skeptical legislature. "He’s always advocated tax cuts and he’s always been very frugal and conservative," notes David Newell, the legislative liaison for Nebraska’s Department of Revenue.
Although their state politics is dominated by a Democratic legislature and liberal Democratic governor Parris N. Glendening, Maryland residents won a 5 percent decrease in state income taxes this year, as well as an increase in the exemption for dependents. "The governor was dragged into it," says Robert Ostrom of the Coalition of Maryland Taxpayers, because the unpopular chief executive is facing a tough battle for re-election in 1998. Indeed, says Ostrum, both he and the Democratic legislature have been feeling heavy pressure to board the tax-cut train before it runs them over.
United They Cut
Some Republicans have not faced partisan wrangling to achieve tax relief. This year Iowans enjoyed a $200-million income-tax cut, $45 million in inheritance-tax relief, and $21 million in property-tax reform, all under the administration of Republican governor Terry Branstad a nd a Republican majority that assumed control of the legislature in 1994. They were helped by a $376-million budget surplus this year, attributable in part to Iowa’s new 99 percent rule, which limits state spending each year to 99 percent of anticipated revenues.
Arizona governor Fife Symington recently resigned in disgrace after being convicted of defrauding creditors, but no taxpayer advocate in the state faults his record on taxes. Before leaving office in September, Symington signed $110 million in personal income-tax cuts into law; that’s only one-tenth of the total tax cuts passed under his administration. Like Branstad, he has had the advantage of a Republican-controlled legislature. But Arizona’s recent past shows that two Republican chambers don’t always spell taxpayer-friendly legislation.
"In the 1980s, Arizona went nuts on a tax-and-spending binge," recalls tax activist Sydney Hoff Hay. "That’s the legacy of Jane Hull." Jane Dee Hull was the Republican Speaker of the state assembly during that period; she recently succeeded Symington as governor. Other taxpayer advocates in Arizona believe Hull has become more enlightened since her days as Speaker.
Outside Influences
The importance of citizen–activists in the nationwide tax-cut effort can’t be overstated. In Minnesota, for example, hundreds of thousands of dollars were spent by the Minnesota Family Council and other interested parties on radio and TV ads, mailings, and phone banks for a tax-cut campaign called "Give the Money Back." "I think we did pretty well, considering," says Minnesota Family Council’s Tom Prichard of the 1997 legislative session. Usually tax-tolerant Minnesotans wrung a $946 million tax cut (mainly an income-tax credit, property-tax relief, and an education tax credit) from a Republican administration and a legislature controlled entirely by Democrats, in this year’s otherwise bloated budget.
There have been no significant tax hikes at all this year at the state level, except for higher excise taxes on cigarettes. In the few states where Republican governors tried to push through complicated provisions that would have raised taxes--Texas, Illinois, Ohio, and Louisiana come to mind--they were resisted by legions of conservative legislators and defeated. The trend in state capitols across the country is clearly a tax-cutting one, and may remain so as long as taxpayers’ demand for relief consistently guarantees its supply.
