A number of proactive fiscal policies can prime states for a more prosperous future, our updated guide explains. They include:
Target economy-boosting investments. Research shows that investing in services like education, transportation, and health care promotes economic growth and job quality in the long run. Maintaining and improving these services requires resources. States should scrutinize existing spending to find savings, raise revenue when necessary, and bring their revenue systems in line with a 21st century economy, such as by broadening the sales tax base to include more services.
Improve fiscal planning. Strong fiscal planning helps states determine the resources needed to sustain, beyond any one budget year, investments critical to economic growth. That’s why policymakers should budget for the future: lay out a clear roadmap, ensure that budget impact analyses are credible, and create mechanisms to trigger needed mid-year course corrections.
On the flip side, our guide also recommends that states:
Avoid ineffective strategies and gimmicks. Several states have enacted or considered deep income tax cuts in the name of promoting economic growth. But these tax cuts typically provide the largest benefits to high-income people, while doing little to nothing for everyone else. Bad choices in good economic times, these tax cuts are even more unwise when revenues have just barely surpassed pre-recession levels. The result is less money for services that are fundamental to economic growth, as well as increasingly skewed tax systems in which the lowest-income people pay the biggest shares of their incomes in taxes.