(Note: With legislative sessions largely adjourned in statehouses across the nation, this is the first in a series of issue-specific session roundups from Progressive States Network highlighting trends in different policy areas across the fifty states. Read the full session roundup here. )
Like several countries in the European Union, conservatives in the U.S. promised that slashing state government spending would fuel economic growth. Thirty states have responded to budget deficits by doing just that. At the same time, 20 U.S. states and a number of other European countries have taken the opposite approach, generating revenue and focusing additional spending on economic recovery.
Just like in Europe, the states that chose austerity have been outpaced in job growth and economic recovery by the states that raised revenue to expand government spending. According to an analysis by the Center for American Progress, the states that cut spending have experienced the following economic outcomes:
- Their unemployment rates are 4.1% higher;
- There are 6% fewer private-sector jobs; and
- Their economies are growing 2.7% slower than before the recession.
Meanwhile, the states that expanded spending experienced the following economic results:
- Unemployment is only 3.5% higher than pre-recession levels; and
- Compared to states that cut spending, there are 1/3 fewer lost private-sector jobs. [Read more]
Raising Revenue: Moving into 2013, it is clear that expanding government spending is an effective method to accelerate much needed economic recovery and job growth. To do that, states must find ways to raise revenue and defeat conservative efforts to cripple state budgets indefinitely through permanent and regressive tax cuts. Some states made progress on this in 2012.
Defeating Regressive Proposals: A number of states considered regressive tax measures, many of which would ensure future budget crises. Many states rejected those proposals.
Improving Transparency: One way to build momentum for fair tax reform is to improve the transparency of the current system. Transparency can be improved unilaterally by the executive branch, but when the executive is unwilling, legislation can require transparency. Progress was made toward improving transparency in 2012. [Read More]
Many states' budgets are just beginning to come out of the recession, with no gap or small surpluses. Conservatives remain intent on tax cuts, in spite of the fact that such cuts undermine the ability of state budgets to return to pre-recession revenue levels. Without additional revenue, states cannot accelerate the economic recovery. Conservative attempts at tax cuts have primarily focused on the most progressive components of state tax codes — income and estate taxes. [Read more]
In 2013, raising revenue to stimulate a slow economic recovery and create job growth sufficient to fund future state budgets is critical. Making personal income taxation more progressive enjoys popular support. There are other ways to raise revenue and stimulate job growth. Two especially timely policies are combined reporting and state development banks.
Combined Reporting: Combined reporting requires multi-state corporations to report profits from all entities, including subsidiaries, for tax purposes. This restricts tax avoidance strategies and nullifies certain tax shelters, preventing multi-state corporations from avoiding paying the taxes they owe.
State Banks: State banks team up with local banks — plus credit unions and community development financial institutions — to keep public money inside the state where it will create new jobs, lower financial services costs, and strengthen local banks. State banks also generate revenue; the Bank of North Dakota returned $62 million in profit to North Dakota’s general fund in 2010. [Read more]