Kansas Isn’t the Only Tax-Cutting State With Budget Woes

As we noted this morning, Kansas is the poster child for the harmful consequences of large state tax cuts, which can open up huge budget holes and undermine the foundations of a strong state economy, like a high-quality education system. But Kansas isn’t the only state experiencing pain of its own making.  Big tax cuts are playing a major role in several other states’ budget woes.  For example:

• North Carolina followed Kansas’ lead and enacted large cuts to personal and corporate income taxes in 2013.  The cuts, which started taking effect last January, are already contributing to budget shortfalls; North Carolina faces a $200 million shortfall so far in the current budget year.   Some estimates put the 2016 cost of the tax cuts at $1.2 billion (about 8 percent of the budget).
• Pennsylvania is $2 billion (nearly 7 percent) short of the revenue it needs this year to maintain services at current levels. This is an ongoing problem — revenues haven’t kept pace with needs in recent years — and tax cuts are a major reason. For example, the state has repeatedly cut a corporate tax called the capital stock and franchise tax. This tax, which raised more than $1 billion a year before the recession, will bring in an estimated $118 million in 2016 before disappearing altogether.
• Wisconsin projects that revenues over the coming biennium will fall $2.2 billion (6.5 percent) short of agencies’ budget requests. This comes on the heels of several sets of tax cuts over the past four years that will cost over $1 billion this fiscal year, the state’s Legislative Fiscal Bureau estimates, and likely more than $2 billion in the next biennium.

Despite the steady improvement of the national economy, these states are trying to figure out how to plug budget holes.  Other states shouldn’t follow their example.