Regulatory Reform

Cato Institute Grades Governors on Fiscal Record

The latest edition of the Cato Institute’s Fiscal Policy Report Card on America’s Governors grades the states on economic policies enacted since 2010.  Governors that earned an “A” implemented pro-growth reforms, such as reducing taxes and spending, while Governors that received an “F” have a record of raising spending and increasing taxes. Here’s what state legislators should know about this year’s Fiscal Policy Report Card:

Governors With Pro-Growth Policies Earned an “A”

Governors in Kansas, Florida, Maine, and Pennsylvania all received an “A” for smart fiscal reforms. For example, Kansas Gov. Sam Brownback signed a personal income tax reform package that reduces rates and simplifies tax brackets. Small businesses also receive vital economic relief through Kansas’s tax reform package. This reform eliminates the income tax on small businesses. According to Cato, taxpayers in Kansas are estimated to save $800 million per year as result of the tax cuts.  In fact, while other states continue to struggle with high unemployment rates, Kansas’s job growth is estimated to increase.

 Governors With Tax and Spend Policies Received an “F”

Governors in Illinois, Connecticut, Minnesota, Hawaii, and Washington all earned an “F” for fiscal policies that harm economic growth. Illinois provides a great case study in the shortcomings of tax and spend policies. Gov. Pat Quinn signed a $1.1 billion tax increase in 2009, a 67 percent individual income tax increase in 2011, and a $1 per pack increase on cigarette taxes in 2012. However, the Land of Lincoln still continues to struggle with budget deficits and unfunded liabilities for state pension plans. Taxpayers and businesses alike continue to flee the state in search of much-needed tax relief.

Challenging Fiscal Times Ahead

Lastly, Cato’s Report Card also points out the tough economic challenges ahead. According to Cato, state tax-supported debt soared from $230 billion in 2000 to $510 billion in 2011. In fact, experts estimate total state and local bond debt at $3 trillion, or roughly more than $25,000 for each household in the nation. Furthermore, estimates on total state unfunded pension liabilities range in the trillions. For example, American Enterprise Institute scholar Andrew Biggs uses fair market valuation to estimate total state unfunded liabilities at $4.6 trillion. Cato pension expert Jagadeesh Gokhale estimates that the funding gap for accrued benefits plus future accruals is roughly $10 trillion.

With these future bills coming due, it’s crucial that states have pro-growth fiscal policies that can create jobs, encourage business investment, and help close budget shortfalls. As we like to say in Rich States, Poor States, states do not enact fiscal policies in a vacuum. Each time a state changes its fiscal policies, it directly influences that state’s competitive position for business and personal investment. As states face fiscal challenges ahead, we hope they learn valuable lessons from Cato’s Fiscal Policy Report Card.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth