Welfare states - benefits of tax cuts

National Review, Nov 6, 1995 by Stephen Moore

Congressional Republicans take note: Tax-cutting politicians create jobs and prosperity. And win elections.

STEPHEN MOORE

Mr. Moore is director of fiscal-policy studies at the Cato Institute.

IT SEEMS only yesterday that America's statehouses were dominated by a liberal dream team of activist tax-and-spend governors. Most celebrated of all were Lowell Weicker of Connecticut, James Florio of New Jersey, and Mario Cuomo of New York.

In the early Nineties these three Northeastern governors became torchbearers of a new "progressive liberalism" that was expected to overturn the Reaganism of the previous decade. Each enacted "shake down the rich" tax hikes to fund expansive social programs. Weicker and Florio received in succeeding years the Kennedys' Profiles in Courage award. (Raising taxes in the face of ferocious public disapproval is evidently sufficient qualification for the coveted award.) After signing into law Connecticut's first-ever income tax, Weicker lectured: "The 1980s brought selfishness to new heights. Today we're picking up the refuse of that failed philosophy."

What a difference an election or two can make! Today, it is pretty much the refuse of progressive liberalism that is being scraped off the floor. Connecticut, New Jersey, and New York are now governed by Republicans -- John Rowland, Christine Todd Whitman, and George Pataki -- all of whom are unapologetic disciples of Reaganomics. Each has spent 1995 hacking away at the anti-competitive tax hikes enacted by their once-celebrated predecessors.

In fact, across the country -- from Albany to Lansing to Phoenix to Sacramento -- Republican governors are in a seeming contest to see who can make the deepest cuts in economically debilitating tax systems. Thanks to last November's GOP landslide, 30 states -- including 8 of the 10 largest -- now have Republican governors. In sharp contrast to the early 1990s -- when states went on an unprecedented tax-raising binge -- this year 29 governors recommended tax cuts and 21 legislatures enacted them. No states -- not one --raised taxes significantly. (The Kennedy clan will be hard put to find a deserving awardee this year.)

With few exceptions, the large class (14) of freshman Republican governors has shown a kind of religious zeal for rolling back taxes and shrinking state government. Most impressive have been Bill Graves of Kansas, Gary Johnson of New Mexico, George Allen of Virginia, Frank Keating of Oklahoma, and Tom Ridge of Pennsylvania. In Virginia, the Democratic-controlled legislature smothered Governor Allen's tax-cut proposals, but the setback may prove to be only temporary. The GOP has made Virginia's election this November a near-referendum on the governor's $2-billion tax cut. The issue is expected to propel Republicans into control of the state legislature for the first time since Reconstruction.

"This was the largest tax-cutting year for states in a decade," Arthur Laffer and Victor Canto conclude in their annual report ranking the tax competitiveness of the states. Or as Steve Gold, state-fiscal-policy expert at SUNY Albany, puts it: "The ideological conservatives who want to shrink government are seizing control of state government."

In Michigan, Governor John Engler celebrated his 60 per cent re- election landslide by signing into law his 13th and 14th tax cuts in five years. Wisconsin's Governor Tommy Thompson cut property taxes. Governor Fife Symington is crusading to make Arizona the first state ever to repeal entirely a state income tax. This year he delivered the down-payment on that pledge by chopping tax rates by 20 per cent.

UNQUESTIONABLY the politician most responsible for this flurry of tax cuts is New Jersey's Christine Whitman. By now Mrs. Whitman's political success has become the stuff of legend. In her 1993 race to unseat Governor Florio, she had sagged so low in the polls by late summer that her campaign was given last rites by every political pundit on the East Coast (not least James Carville, who publicly guaranteed a Florio victory). With two months to go, out of sheer desperation, Mrs. Whitman embraced a plan, conceived by supply-siders Steve Forbes and Larry Kudlow, to cut income-tax rates by 30 per cent. Seldom in American politics has a single idea put forth in a state election campaign been as uniformly reviled by the news media as this one. For good reason: the Whitman plan was the absolute antithesis of new-age progressive populism. Mrs. Whitman presented voters with clear choices. Republicans almost always win when that happens, and so she did, 49 to 48 per cent.

This year, to the surprise of everyone -- not least, conservatives -- Governor Whitman delivered fully on the tax-cut promise. A July New York Times editorial grudgingly conceded: "In political terms, Gov. Christine Todd Whitman of New Jersey has had a sensational first year and a half in office. She has cut income taxes as promised in two years instead of three, without shredding local aid or social programs. Small wonder that she is being talked about for the national Republican ticket." Governor Whitman, a socially liberal country-club Republican, continues to enjoy towering public-approval numbers midway through her term. The Whitman phenomenon confirms a truism in American politics: Voters are seldom happier with their elected officials than when their taxes are being cut.