The Governors List: What "too much" success has done - President Bush seems eager to shift power from the federal government to the states, despite the fact that many states are in economic difficulties

National Review, March 5, 2001 by Stephen Moore

George W. Bush has made it clear that he intends to rely heavily on the 29 Republican governors as a farm team for talent and policy advice. New Jersey's Christine Whitman and Wisconsin's Tommy Thompson are in the cabinet; Virginia's Jim Gilmore is heading the Republican National Committee; John Engler of Michigan, Tom Ridge of Pennsylvania, and, of course, Brother Jeb of Florida are among Bush's closest confidants.

After a White House meeting between Bush and a handful of Republican governors, Idaho's Dirk Kempthorne announced that "Bush's agenda is our agenda." They want Bush to devolve power to the states, and Bush seems happy to oblige.

Throughout the 1990s, Republicans dominated America's governorships. Roughly 61 percent of Americans live in states with a Republican governor, and these governors have been trailblazers on policy issues ranging from welfare reform and school choice to tort reform and the environment. Bush is also attracted to the governors for political reasons: Their state electoral machines were crucial to his victory in 2000.

Stylistically, too, most of the governors are a good fit for Bush's low-key, nonideological demeanor. Unlike the GOP congressional leaders, whose rough-edged partisanship makes Bush visibly squeamish, the governors are more naturally aligned with "compassionate conservatism." For years, political analysts and reporters-along with liberal-leaning country-club Republicans-have been applauding the governors for a shrewd governing philosophy that combines cultural moderation and fiscal conservatism.

But here's the problem: State-government expenditures are booming, and much of the spending spree is occurring in states with Republicans at the helm. The New York Times recently reported that at least half of the states are now experiencing a "fiscal emergency," and Governing magazine has declared that Republican governors have "rediscovered the joy of spending." In ten states last year, budgets rose by 10 percent or more; four of those states-Rhode Island, Virginia, Wisconsin, and Wyoming-have Republican governors. Nationwide, only about one of every seven dollars of state surpluses last year was sent back to workers through tax cuts or rebates.

What's going on here? Just seven years ago, New Jersey's Christie Whitman became a national supply-side heroine by riding her 30 percent income-tax-cut proposal to an improbable victory over an incumbent governor. The political and economic success of "Whitmanomics" touched off a nationwide tax-cutting spree. A new crop of influential and charismatic GOP governors-John Rowland of Connecticut, George Pataki of New York, Frank Keating of Oklahoma-joined Whitman, Tommy Thompson, and John Engler in this crusade.

And the tax cuts worked: They were a passport to prosperity and reelection. The states that cut taxes most had about twice the job growth of-and about 40 percent more income growth than-states that didn't cut taxes. Richard Vedder of Ohio University calculates that in the 1990s, about 1,000 Americans every day left high-tax states for low-tax states. (In the time it takes you to read this article, seven more New York and Massachusetts families will have joined the contemporary gold rush for low-tax havens like Arizona, Florida, and Texas.) Meanwhile, tax-cutting Republican governors have been getting reelected by sizable margins for the past several election cycles.

But now many Republican governors are starting to question their party's antitax philosophy. Cigarette-, gas-, and sales-tax rates are inching up again to fund pet spending projects. George Ryan of Illinois and Bob Taft of Ohio were elected in 1998, and both wasted no time in bullying through major tax hikes to pay for infrastructure spending. Jane Hull raised the Arizona sales tax to pay for school class-size reductions. Mike Leavitt of Utah has reaped the ire of conservative activists for supporting a tax on the Internet to pay for new spending. After Louisiana's Mike Foster extended a state sales tax on food, he publicly lashed out at his supply-side critics: "Some people in my party see tax cuts as the Holy Grail. It's not." (Unsurprisingly, Louisiana's economic performance over the past five years has lagged severely behind that of the rest of the country.)

Many governors have cast aside the economically productive rate cuts of the early 1990s in favor of such gimmicky tax-relief measures as tax rebates (in Connecticut, Colorado, Minnesota, Mississippi, and Wisconsin) and sales-tax holidays (in Florida, New York, and Oklahoma). In Texas, Bush himself put new meaning into the term "targeted tax cuts" by pushing for a sales-tax exemption for diapers.

This decline of tax-cutting fervor is surprising, because there's no indication that state income-tax cuts have lost their political luster. Even in Massachusetts, nearly 60 percent of the voters approved a measure-endorsed by Republican governor Paul Cellucci-to cut the income-tax rate from 5.85 percent to 5 percent. If tax cuts still play in Boston, they certainly should in Peoria.