This will be a short diary. Occasionally reporters manage to beat Sturgeon's Law and actually turn up news that is... well news instead of olds, endlessly recycled. The approved narrative is that states must cut taxes if they are to rebuild their economies, right? Hat tip to Atrios for picking up a McClatchy story that suggests otherwise.
And that stalwart advocate of capitalism, Marketplace of American Public Media turned up another example - though you have to get through the spin to realize it.
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The McClatchy story by Tony Pugh does something rare - dots are connected. You know how the states are finding themselves in a financial hole these days? As always, the usual suspects proclaim it's because they spend too much - but no one looks at the revenue side. Until now.
....Across the country, taxpayers jarred by cuts to government jobs and services are reassessing the risks and costs of a variety of tax reductions, exemptions and credits, and the ideology that drives them. States cut taxes in hopes of spurring economic growth, but in state after state, it hasn't worked.
There's no question that mammoth state budget problems resulted largely from falling tax revenues, rising costs and greater demand for state services during the recession. But questionable tax reductions at the state and local level made the budget gaps larger — and resulting spending cuts deeper — than they otherwise would have been in many states.
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The Marketplace piece by Adam Allington looks at the border effect; Missouri has lower taxes on things like gasoline, beer, sales taxes, etc. Neighbor Illinois sees a lot of its citizens crossing over to tank up. Sounds like a good deal for Missouri, no? It's buried at the end of the piece, but here's the kicker:
Ron Leone heads a lobbying group for Missouri's gas stations and convenience stores. He says the lower taxes attract tens of thousands of cross-border shoppers every day.
LEONE: We will do everything within our power to keep them low, to keep them reasonable.
But critics point out that cutting taxes on gas or cigarettes has never actually increased state revenues, or paid for new roads and bridges.
Ralph Martire is the director of an Illinois think tank called the Center for Tax and Budget Accountability.
RALPH MARTIRE: All the data show that the supply-side theory of public finance, it just doesn't work. So anyone who's counting on that coming through, people buying substantially more gasoline because the taxes are lower are -- I think the technical fiscal term is "goofy."
Martire says a race-to-the-bottom in taxes may not be a successful long-term strategy. He points to studies in Illinois that show every tax dollar spent on infrastructure has actually created $1.50 in economic activity.
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Read both pieces - the McClatchy story has a lot more information and detail - but they both show that tax cuts as the answer to every economic problem is more an article of faith than anything backed up by reality. As the Pugh article notes:
"We think that's the way to rebuild our state, and to get it on a path toward economic prosperity," [Michigan Governor] Snyder's top economic development official, Michael Finney, said during a recent trip to Washington.
History suggests otherwise, however. After the nation recovered from the 1990-91 recession, 43 states made sizable tax cuts from 1994 to 2001 as the economy surged. Twenty-eight states, in fact, reduced their unemployment insurance payroll taxes after 1995.
But states that cut taxes the most ended up with the largest budget shortfalls and higher job losses when the economy slowed again in 2001, according to research by the Center on Budget and Policy Priorities.
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This should speak for itself - but it wouldn't hurt to spread it around.