High-Tax, High-Spend Model Still Does Not Work

Alex Adrianson / April 08, 2010

State government finances are in a bad way, and for an examination of why that is the case, see the latest edition of “Rich States, Poor States,” released this week by the American Legislative Exchange Council. The basic story, as anyone following state fiscal issues will surely know, is that too many states went on spending binges in the early part of the decade when revenue was rolling in, but didn’t leave enough in reserve to handle the collapse in revenues caused by the 2008-2009 recession. The ALEC volume is, as past editions have been, chock full of great information. For instance:

• Did you know that if states had just kept their spending growth the same as population growth plus inflation between 2002 and 2007, they could have maintained all their services and still provided a $500 billion tax cut?

• Why did states leave nothing in reserve? Political pressure, especially from government employee unions is a big part of the story. State legislatures, for instance, have lavishly enhanced pension benefits, but state employees should have little confidence that the states will ultimately make good on those promises. Only 9 percent of state pension plans have enough assets to be considered safe according to government standards. (more…)