While it’s being reported that every state (except Florida) had snow on the ground this week, 46 states are digging out of another kind of mess — a combined deficit of at least $127 billion. Democratic and Republican state leaders alike are grappling with structural budget deficits, many of whom are proposing budget cuts to tackle the problem.
But then there’s Illinois.
President Barack Obama’s home state is beleaguered by a $15 billion budget deficit that is said to be the worst in the nation. And apparently the last thing on Democrat Gov. Pat Quinn’s mind is budget cuts. Instead, he intends to sign a bill passed by the state legislature that would raise state income tax by 67 percent (from 3 to 5 percent) and borrow $12.2 billion to pay the bills ($6.2 billion of which are past-due). (Quinn campaigned on a pledge to only raise taxes by one percentage point.)
Some in his own party are questioning the strategy. Illinois’ News-Democrat quotes State Rep. Tom Holbrook (D):
“I don’t think we need to dig ourselves in any deeper,” said Holbrook, adding he wants Quinn’s staff to tell “us where they’re going to make cuts before we even look at revenue. This is a crisis.”
There are some folks who will benefit from Quinn’s decision to raise taxes by some $7 billion. None of them are in Illinois, though. In Wisconsin, newly elected Gov. Scott Walker (R) wants to launch an advertising campaign aimed at encouraging Illinois businesses to move north to escape the tax increases. Likewise, Indiana Gov. Mitch Daniels (R) sees a boon for his state. “It’s like living next door to ‘The Simpsons’ — you know, the dysfunctional family down the block,” Daniels said.
Fortunately, the Quinn way isn’t the only way. Even Democratic leaders in traditionally liberal states are seeing that tax hikes and borrowing aren’t the only option, and it’s not a party-line issue. Take California, for example. Newly elected Gov. Jerry Brown (D) faces a $28 billion deficit and has proposed $12 billion in cuts to the state’s higher education system, health care and social service programs (in addition to $12 billion in new taxes). Quoth Brown:
No more smoke and mirrors on the budget. No empty promises. Second: No new taxes unless the people vote for them. And third: Return as much as possible -— decisions and authority — to cities, counties and schools.
And though cuts to education and social programs aren’t big winners for the left, even Democratic leaders in the state legislature seem to be on board. The president pro tem of the state senate, Darrell Steinberg (D), pledged his confidence that he can get the budget cuts through his caucus.
Jumping from the West coast to the East coast, New York has its share of problems, too. The Empire State faces a budget deficit of $10 billion (that is projected to grow to $17 billion by 2014). Incoming Gov. Andrew Cuomo (D) has declared the state to be in crisis and, as Reuters reports, is “proposing solutions long championed by Republicans to control a soaring budget deficit, overhaul Medicaid and reform a dysfunctional government.” He’s pledging not to increase taxes or rely on borrowing while proposing cuts, freezing state workers’ wages, keeping spending increases at the rate of inflation, and easing mandates on local government.
Budget cuts and a distaste for new taxes. That’s a sharp contrast to the tack taken by Illinois’ Gov. Quinn. It’s also the message that voters brought to the polls in November when they sent a whole new crop of representatives to Congress. The reality of the high cost of spending is hitting states hard, and it’s likewise a problem for the United States as a whole. Heritage notes that, “Even with $3 trillion in tax increases over the next decade, the President’s budget would double the national debt to more than $20 trillion ($138,000 per household) by 2020.” The new Congress should look to cut spending, and they can start with $343 billion in available cuts in FY 2012.
Congress should also take heed that what is happening in Illinois on a micro scale can happen to the United States on a macro scale. Just as other Midwestern states are looking to lure businesses away from Illinois’ bad economic environment, other countries can attract businesses and jobs away from the United States. And businesses don’t have to look far. As The Heritage Foundation’s 2011 Index of Economic Freedom shows, Canada ranks higher than the United States in economic freedom and has improved its long-term competitiveness thanks in part to straightforward regulations and a declining corporate tax rate. Meanwhile, the United States is not the free economy it once was, largely due to last year’s government spending spree, leading to fragile business confidence and crushing public debt. The result? Eroded economic freedom and weakened long-term competitiveness.
Members of Congress should take a cue from the states that are looking at spending cuts to tackle their deficits. But they should also learn Illinois’ lesson — creating a bad environment for business can be your neighbor’s economic gain.