State surpluses are being attributed to two things: national economic growth and an increase in state’s personal income taxes. Incoming revenues from state income taxes are outpacing spending. It is the mix Obama has been practicing and advocating, a balance between cuts and new revenues. There is one caveat: Wealthy taxpayers, anticipating federal income tax increases in 2013, shifted income into 2012 to take advantage of the lower taxes, resulting in a bonanza for the states’ personal income taxes.
Now, state governors and legislatures are debating about what should be done with the budget surpluses. Their plans, to the surprise of many, often cross party lines. However, as I noted here last week, with Congress all but a useless appendix to the federal government, virtually everybody else — voters, mayors, governors and the president — is using workarounds to do the job Congress should have done in the first place.
Some governors are proposing tax cuts like the Republican governors David Heineman and Scott Walker of Nebraska and Wisconsin, respectively, and the Democratic governor of New York, Andrew M. Cuomo. There are also a number of governors who want to allocate some of their surpluses to education. The New York Times reports the Republican governors in Georgia, Idaho and Kansas, along with Democratic governors in Missouri and Colorado, are all strongly advocating substantial increases in spending for education.
“Next to their parents, the adults children see most in their life are their teachers. We should support our teachers with additional pay,” the Times quoted Republican Gov. Susana Martinez of New Mexico. There is a welcome thawing around steel-rods-embedded-in-Arctic-ice partisanship in the state houses of our nation. A focus on pragmatism and working together is taking hold at the grass roots of government.
The state with the most dramatic turnaround is California, which has runs billions of dollars in deficits for over a decade. The worker of magic here is Democratic Governor Jerry Brown, who put his office on the line in asking voters to approve a temporary tax increase. It worked. They approved, and California is projected to show a $1 billion surplus in 2014-15, increasing to $9 billion by 2017-18.