The expected and the unexpected

The expected and the unexpected

Pipho, Chris

BACK IN January, when the campaign promises were still fresh in eveyone’s mind, tax cuts seemed to be guaranteed headline grabbers for this legislative session. Led by the success of such governors as Christine Todd Whitman of New Jersey, new governors seemed to “expect” that tax cuts would lead the way to a smaller government.

Steven Gold, director of the Center for the Study of the States at the Nelson A. Rockefeller Institute of Government in Albany, New York, identified as many as 30 governors who had promised tax cuts during their campaigns. Given the mood of the electorate, any failure to deliver on these promises would be most “unexpected Seasoned observers of the state political scene were curious, if not downright skeptical, about how these promises could be kept if doing so would require drastic cuts in services. The one out for the governors seemed to be the possibility of a sharp upturn in tax revenues. A fast-paced, growing economy can sometimes turn state revenues around in one or two fiscal quarters. A budget surplus — or even an anticipated budget surplus — can often provide political cover for a tax cut. But the tax cuts proposed in some states were so large that they risked being tagged as “foolhardy.”

Gov. John Rowland of Connecticut and Gov. Fife Symington of Arizona both talked about abolishing their states’ personal income tax by the end of their terms of office. Gov. George Allen of Virginia proposed cutting $2.1 billion in income tax and sales tax but immediately got into a spitting match with the Democratic-controlled Senate. In the end, Gov. Allen’s proposed tax cuts were rejected. Similarly, in New Mexico the legislature reduced the gasoline tax by three cents a gallon but said no to Gov. Gary Johnson’s call for cuts in income and other taxes.

By mid-April income tax cuts were not being widely accepted by legislatures. In California Gov. Pete Wilson’s call for a 15% rollback in personal and corporate income taxes also appeared to be in trouble, as were similar proposals in Massachusetts, Wisconsin, and Nebraska. Where cuts were approved, they hovered in the 1% to 4% range in such states as Arizona, Georgia, Idaho, Kentucky, Michigan, and Utah.

In this push to reduce tax burdens, legislators apparently see a different bottom line than do governors. For legislators, maintaining services, building revenue cushions for the next recession, and simply balancing the budget all come ahead of the campaign promises made by governors.

Ohio’s Gov. George Voinovich seems to be one politician deviating from the norm. Sitting on a budget surplus approaching $1 billion, Gov. Voinovich sees the need to build some protection against the next economic downturn and the potential cuts in federal aid. The governor has even proposed a couple of tax increases and has taken on the group Americans for Tax Reform, which is trying to collect signatures for a ballot initiative requiring a “super majority” (three-fifths or two-thirds of the legislature) to raise taxes. Rumored as a potential candidate for vice president on a Republican ticket, Voinovich is going against the reigning orthodoxy of his party, and the consequences could put him on the outside of the action.

Meanwhile, the governor’s tax increases will probably run into difficulty in both houses of the legislature, which are controlled by his own party. One of his increases would take the form of doing away with a 12.5% state rebate of local taxes on property valued over $200,000. The other asks the legislature to reinstate a one-cent “bottle and can tax” on soft drinks by overturning the constitutional amendment that killed it last year. Gov. Voinovich says that the soft drink industry spent $10 million on a campaign to scare voters into believing that the tax would open the door to taxes on all food products.

The bottom line for Gov. Voinovich is the belief (admittedly a gamble) that the voters will support his call for fiscal prudence. The events in Ohio should prove interesting as the Presidential race unfolds.

Chris Pipho is division director, Information Clearinghouse/State Relations, Education Commission of the States, Denver.

Copyright Phi Delta Kappa Jun 1995

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