New Study Exposes Risks of State Tax Hikes; Points the Way to Positive Solutions to State Budget Woes

1/2/2003

From: John Berthoud or Maureen Tell, 703-683-5700, both of the National Taxpayers Union Foundation

ALEXANDRIA, Va., Jan. 2 -- As lawmakers in state capitals across the country begin work on balancing their budgets, a new study by the National Taxpayers Union Foundation (NTUF) warns that tax increases are the wrong solution to state budget shortfalls. Study author and NTUF President John Berthoud stated, "A review of the last state budget crisis clearly shows that resorting to tax hikes will slow economic recovery and thus prolong the budget agonies that many states are experiencing."

The study reviews a range of research showing a strong causal relationship between higher taxes and poor economic performance. States which enacted tax hikes during the last budget crisis (in the early 1990s) experienced slower income, employment, and population growth during the ensuing decade. Berthoud observed, "The message of history is clear: ratcheting up taxes is a devastating poison pill for state economies. This lesson would be particularly true now, given the nation's current sluggish growth. Further, voters have made very clear that they already believe the tax burden -- which is at record levels in many states -- is already too high as it is."

Noting that state budgets will be under greater strain in 2003 than they were in 2002, the study goes on to outline steps that states can take to reform and reduce the size of government. Drawing on work by the American Legislative Exchange Council, Berthoud advises, "America's Governors and State Legislators have to confront spending head-on. There is no other choice if states are going to get out of their current budget dilemmas without causing harm to their economies."

Berthoud examines steps being taken by Governors across America and cites approvingly Bill Owens (R-Colo.), Mark Warner (D-Va.), and Craig Benson (R-N.H.) as leaders who -- at least now -- are working to resolve budget shortfalls without resorting to higher taxes. Berthoud concluded, "These leaders have heard the message from voters and are stepping up to the leadership plate by delivering smaller, smarter government, rather than more taxes. We believe other Governors around the country should be following their lead."

The National Taxpayers Union Foundation is the research arm of the 335,000-member National Taxpayers Union, a nonpartisan organization founded in 1969 to work for lower taxes, the elimination of wasteful spending, and more accountable government. More information, including copies of NTUF Policy Paper 140, Solutions to the States' Budget Ills, is available online at http://www.ntu.org or by calling 703-683-5700.