Should States Engage in a Race to the Bottom on Taxes and Spending?

Thursday, July 18, 2013 at 4:28 PM by

Grover Norquist Neglects the Facts in Exhorting North Carolina to Follow Wisconsin Path

In a recent article, political commentator and conservative strategist Grover Norquist urged North Carolina lawmakers to make their state the “new Wisconsin.”  He uses or misuses one piece of economic data to suggest that Wisconsin’s economy is thriving, while ignoring ample evidence that indicates otherwise.  That argument shows the same sort of inattentiveness to or disregard of economic facts that led many conservatives to advocate that the U.S. should emulate the fiscal austerity policies being practiced in the European Union.  

The one piece of economic evidence cited by Norquist and the article’s coauthor, Patrick Gleason, is that over the past two years, since Governor Walker signed the last biennial budget bill, “the state’s unemployment rate has dropped from 7.6 percent to 7 percent — below the national average.”  It’s true that Wisconsin’s unemployment rate is below average – but that’s nothing new and can’t be traced back to a particular policy agenda.  Wisconsin has enjoyed a lower-than-average unemployment rate since 2007, under both Democratic and Republican administrations.  And since June 2011 when Walker signed the 2011-13 budget bill, Wisconsin’s unemployment rate has fallen much more slowly than the national rate and the North Carolina rate. 

Even if North Carolinians envy Wisconsin’s relatively low unemployment rate, they shouldn’t try to follow in Wisconsin’s footsteps in terms of job growth.  By almost every measure, Wisconsin has lagged the national average in job growth over the last year or two.  The chart below shows how the change in Wisconsin’s employment more or less tracked the national average until about January 2012. At that point, Wisconsin’s job growth stalled while other states continued on a steady upward trend.  This is not a path other states should choose to emulate.

Another substantive point that Norquist and Gleason make for following Wisconsin’s lead is a fiscal responsibility argument – that Walker and some of the other GOP governors are “putting spending in line with revenues.”   That was true of the 2011-13 Wisconsin budget, but not the most recent one.  By using a temporary state surplus for a large, ongoing income tax cut, GOP lawmakers in Wisconsin have once again caused an imbalance between revenue and spending, and the Legislative Fiscal Bureau projects a structural deficit in the 2015-17 budget of about $500 million.   

We have no idea whether North Carolina lawmakers were persuaded by or even aware of the arguments made by Norquist and Gleason, but this week those legislators did pass a very large cut in the income tax.  (Read more here.)  Perhaps in some ways they have taken cues from Governor Walker, but in many respects North Carolina has moved much further to the right than Wisconsin – by making deep cuts in unemployment insurance benefits, not expanding Medicaid for low-income adults, and this week adopting an even more regressive package of tax changes than the income tax cut recently enacted here.  

Before other states join this rush to the bottom, let’s hope they take a careful look at the economic evidence, which shows that Wisconsin has been lagging the national recovery.  It also shows that the states that cut taxes the most in the 1990s grew more slowly over the next economic cycle than the rest of the U.S. 

Lawmakers across the country who are interested in growing jobs and making their states economically competitive need to put aside their preconceived notions about the effects of tax cuts and understand that they are doing more harm than good when they enact the sorts of cuts that the North Carolina legislature has now approved in education, health care and other services that are critical to a state’s future economic prosperity. 

Jon Peacock and Tamarine Cornelius 

July 19 UPDATE:  Shortly after we wrote this blog post, the June job numbers were released by BLS.  Although those were very encouraging, that promising news was undercut the next day by a Dept. of Revenue Economic Outlook report  that forecasts Wisconsin will add just 31,000  private sector jobs during 2013.  In addition, the report projects that growth from 2010 to 2014 will be just 137,000, which would be 45% short of the 250,000 that Walker promised when he ran for Governor.  

One Response to “Should States Engage in a Race to the Bottom on Taxes and Spending?”

  1. Kevin says:

    Love the blog.

    Question for you about this entry. What’s the historic “total spend” %age increase on Wisconsin budgets over the past 10-20 years? If I recall, the last 3 have spent $66b, $68b, $70b. With inflation running low, it would appear that Wisconsin hasn’t been cutting spending much at all (just the growth), instead changing priorities (lower spending on education, replaced with higher on health care, etc.)

    Right? What were the %age increases like under Doyle? Curious.