On State Spending

Chris Edwards picks on the Girlie-man Governor from my state for his claim that state governments are spending too much:

State tax revenues jumped 8.7 percent in 2004 and about 8 percent in 2005. About three-quarters of state governments had tax-revenue growth of 6 percent or more in 2005. What will the states do with their overflowing coffers? During the revenue boom of the 1990s, states allowed their budgets to bloat as they expanded programs such as Medicaid to unsustainable levels. When the recession hit in 2001 and revenues stagnated, state officials moaned that they were innocent victims of a fiscal crisis. They responded by hiking taxes and clamoring for more aid from Washington. Only a few years into the current boom, some states are already making the same mistake of overspending. In California, Gov. Arnold Schwarzenegger has proposed a budget increase for fiscal 2007 of 8.4 percent, which follows a 9.7 percent increase in 2006. This is the same governor who, in 2003, said, “if you spend, spend, spend, then you have tax, tax, tax, but all of a sudden you say, ‘Where are the jobs?’ Gone, gone, gone.” In seeking reelection this year, Schwarzenegger has found a new interest in “spend, spend, spend.” The governor of Maryland is taking the same approach as he seeks reelection. Robert Ehrlich has proposed a huge budget increase for fiscal 2007 of 11.4 percent, which follows a 7.6 percent increase in 2006. Otherwise sensible policymakers – such as these governors – apparently think that there is no harm in allowing spending to rise rapidly during booms, as long as tax rates aren’t increased.

I’ve been known to blast my governor for his promises to spend more, tax less, and reduce the budget deficit as well. But let’s check the data as far as how the share of GDP that goes to state and local government purchases has evolved since 1990, which is represented by the blue line of our graph. State & local purchases were 11.6% of GDP in 2000 – just as they were in 1990. This ratio did increase to 12.2% by 2003 but declined in 2004. Edwards, however, is referring to overall government spending, which includes transfer payments. Overall state & local spending, which is represented by the purple line, increased to 13.5% of GDP as of 2001 and was still 13.5% of GDP in 2005.

I’m delighted that we have partially recovered from the 2001 recession and that tax revenues are creeping back up. In California, we still have large deficits as our governor refuses to either reduce spending or to raise tax rates. But to suggest that state deficits in general are due to runaway spending is to show how one is either ignorant of the facts or all too willing to misrepresent the issues. So much for my attempts to be kind to the National Review.