Although raising taxes will provide states some of the immediate funding they need to cover budget deficits, how harsh will the future impact be? Thanks to an article my fellow Virginia State Delegate, Israel O’Quinn, sent to me, I hope to be able to enlighten you on this question and highlight why increasing taxes and thus state funds doesn’t necessarily mean increased financial stability.
In an article originally published by Investor’s Business Daily, studies from the Mercatus Center at George Mason University reveal the relation between economic stability and Republican controlled, low-tax states compared to the low solvency of Democratic states with high-taxes.
While GOP controlled states such as Florida, Utah, and Tennessee landed in the top 10 best run states, states like New Jersey, Maryland, and California, all under Democratic control, were part of the 10 worst run states. These rankings were determined by 5 factors which assess the fiscal solvency of each state. These range from cash solvency, the ability to pay immediate bills, to trust-fund solvency which assesses a state’s unfunded pension liabilities and state debt. It seems a common trend that states in the bottom 10 are thinking too much about the present and not looking enough to the future. New Jersey and Illinois give great examples of this as they both scored in the bottom of the long-run solvency category which is concerned with meeting long-term spending goals, yet they both did significantly better in service-level solvency which looks at their ability to meet increased spending demands. It seems only natural that the states who meet increased spending while not focusing on meeting future goals are the ones who have the least fiscal solvency.
It should seem obvious that raising taxes isn’t the answer as 4 of the 9 states who raised their taxes this year are in the bottom 10 of the rankings and none of them managed to make it into the top 10. After seeing this it should be clear that the amount of money available isn’t the issue, it’s the ways in which the government uses tax payer money which decides whether the state will have fiscal stability or not.
If you want to check out the article for yourself, the link is here: http://www.investors.com/politics/commentary/best-run-states-are-all-solidly-republican-worst-run-mostly-democratic-study-finds/