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14 October 2010

CATO Grades Governors on Tax and Spending Actions

Chris Edwards of the CATO Institute has put out the 2010 report card on governors.  He grades their performance on their taxation and spending actions and policies.  These state spending results are very important because one of the major reasons for slow job growth and standard of living increases since 2000 has been the 55% increase in state and local government spending from 2000 to 2008.  State spending in 2009 and 2010 is down due to the extended recession, but local government spending was up in those years enough that combined state and local spending in 2009 equaled that in 2008 and exceeded 2008 spending levels in 2010.  State government spending increases were especially steep in the years 2005 - 2008.  Aggregate state spending in 2008 was 31.4% higher than in 2004 and 46.8% higher than in 2000.  Local government spending increases were even faster than the state increases between 2000 and 2008.  These state and local government spending increases added to the federal government increase of 52.5% between 2000 and 2007 and the increase of 66.7% between 2000 and 2008.  These combined spending increases shifted huge amounts of wealth from the private sector to the government sector and greatly weakened the American economy.

The sharp increase in oil  prices in 2007 started the worldwide recession, which brought on our mortgage and loan crisis.  The heavily funded state and local governments had spent years meddling with land use and building restrictions which had driven up the cost of housing beyond belief.  In the extreme case of California, this caused 80% of new home buyers to become sub-prime borrowers!  Such pressures on home buyers helped to fuel support for Fanny Mae, Freddy Mac, the Federal Reserve, and private lending institutions to make mortgages more readily available.  The house of cards developed by the combined effects of huge local, state, and federal spending increases, the oil price shock, and the mortgage and loan crisis created the basis for a severe recession.  Of course, Obama's socialist and anti-business response to that crisis greatly extended and delayed the recovery.

Let's return our focus to the orgy of spending by local, state, and federal government since 2000 and concentrate on state and local spending and debt.  Between 2000 and 2010, state and local government debt increased by 205%!  This debt estimate is based on official, unrealistic projections of state and local pension funds, which estimates them to be underfunded by about $1 trillion.  Better estimates see them as underfunded by about $3.2 trillion.  We have a tendency to focus more on federal spending and debt, but the problem of local and state spending and debt is also huge.  We have a general government spending and debt problem. 

The Edwards report on governors scores them on
  • The average annual percentage change in per capita general fund spending proposed by the governor
  • The average annual percentage change in actual per capita general fund spending
  • The average dollar value of proposed, enacted, and vetoed tax changes
  • Changes in the top personal income tax rate
  • Changes in the top corporate income tax rate
  • Changes in the general sales tax
  • Changes in the cigarette tax rate
The spending on the general fund is used because governors generally have more control on that spending than on other state spending.  After all, state legislatures share in the spending, tax, and debt orgy.  The scoring is based only on the time period 2008 - 2009 since the period covered by Edward's governor report in 2008.  This is important, since Maryland Governor Martin O'Folly, err..... O'Malley earned a grade of F in the 2008 report since he urged and received a $1.4 billion tax increase in 2007, yet in this report he is at the bottom of the grade B list.  There is a paragraph in the report on each governor giving more information on their actions and policies and you should look up your governor in the report.  The paragraphs are labeled alphabetically by state.

The scores and grades are [State, Governor (Party), Score, Grade]:

South Carolina, Mark Sanford (R), 74, A
Louisiana, Bobby Jindal (R), 71, A
Minnesota, Tim Pawlenty (R), 66, A
West Virginia, Joe Manchin (D), 66, A

Wyoming, Dave Feudenthal (D), 63, B
Rhode Island, Don Carcieri (D), 62, B
Oklahoma, Brad Henry (D), 62, B
Nevada, Jim Gibbons (R), 61, B
Texas, Rick Perry (R), 61, B
Alabama, Bob Riley (R), 61, B
Montana, Brian Schweitzer (D), 61, B
Georgia, Sonny Perdue (R), 60, B
Missouri, Jay Nixon (D), 59, B
Idaho, C. L. "Butch" Otter (R), 58, B
New Mexico, Bill Richardson (D), 57, B
Vermont, Jim Douglas (R), 56, B
Indiana, Mitch Daniels (R), 56, B
Maine, John Baldacci (D), 55, B
Maryland, Martin O'Malley (D), 55, B

Kentucky, Steven Beshear (D), 54, C
Michigan, Jennifer Granholm (D), 53, C
Mississippi, Haley Barbour (R), 53, C
South Dakota, Mike Rounds (R), 53, C
Tennessee, Phil Bredesen (D), 53, C
Nebraska, Dave Heineman (R), 51, C
North Dakota, John Hoeven (R), 51, C
Hawaii, Linda Lingle (R), 51, C

Florida, Charlie Crist (R), 49, D
Ohio, Ted Strickland (D), 49, D
California, Arnold Schwarzenegger (R), 47, D
Delaware, Jack Markell (D), 47, D
Arkansas, Mike Beebe (D), 47, D
Iowa, Chet Culver (D), 47, D
Massachusetts, Deval Patrick (D), 43, D
New Hampshire, John Lynch (D), 41, D
North Carolina, Beverly Perdue (D), 40, D
Arizona, Jan Brewer (R), 40, D
Pennsylvania, Edward Rendell (D), 40, D

Washington, Chris Gregoire (D), 39, F
Wisconsin, Jim Doyle (D), 35, F
Colorado, Bill Ritter (D), 35, F
Illinois, Pat Quinn (D), 30, F
Connecticut, Jodi Rell (R), 28, F
New York, David Paterson (D), 25, F
Oregon, Ted Kulongoski (D), 19, F

The average score of the 45 state governors scored was 50.  The governors of Kansas, New Jersey, Virginia, and Utah had not been in office sufficiently long to score them.  The governor of Alaska is not scored because its budget is so peculiar that it cannot be compared to that of other states.

The average score of Republicans was 55, while that for Democrats was 47.  Yet, Gov. Manchin (D) of West Virginia was tied for the 3rd best score with an A at a score of 66, while Gov. Jodi Rell (R) of Connecticut had the third worst score of only 28 with a grade of F.  Nonetheless, the Republicans in this report's time-frame and also that of the 2008 report ( R 55 - D 46) scored significantly higher than did the Democrats.

Edwards points out that some governors think businesses are simply cash cows to be milked for higher state spending.  Prime examples are Quinn of Illinois and Kulongoski of Oregon.  Others, such as Carcieri of Rhode Island, Manchin of West Virginia, and Pawlenty of Minnesota understand that lower state taxes on businesses help state businesses to compete with those in other states and with those in other countries.  Edwards advises that corporation income taxes be abolished because they decrease jobs, create huge compliance burdens, and raise relatively little revenue.

In the last two years, nine states increased their top income tax rates:  California, Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon, and Wisconsin.  Three states have cut their top income tax rate:  North Dakota, Rhode Island, and Vermont.  Governor Carcieri of Rhode Island was outstanding in cutting the state's top income tax rate from 9.90% to 5.99%.

We need to pay attention to the assault on our liberties due to the growth of local and state governments as well as that from our voracious federal government.  This list also gives us a scorecard for the several governors who are running for the Senate in this election or who are being discussed as potential presidential candidates in 2012.  You might note that Charlie Crist of Florida has only a grade of D.  Among governors talked about as potential presidential candidates, Bobby Jindal had an A, Tim Pawlenty had an A, Rick Perry had a B, Mitch Daniels had a B, and Haley Barbour has a C.

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