Four ‘A’s’ and Five ‘F’s’ In Cato’s Governors’ Report Card

Four ‘A’s’ and Five ‘F’s’ In Cato’s Governors’ Report Card
November 6, 2012

The recovery from the recent recession has been very sluggish, and the nation's governors have struggled with the resulting budget deficits, unemployment, and other economic problems in their states. Many reform-minded governors elected in 2010 have championed tax reforms and spending restraint to get their states back on track. Other governors have expanded government with old-fashioned tax-and-spend policies.

That’s the backdrop to Cato Institute’s 11th biennial fiscal report card on the governors, which examines state budget actions since 2010. It uses statistical data to grade the governors on their taxing and spending records—governors who have cut taxes and spending the most receive the highest grades, and those who have increased taxes and spending the most receive the lowest grades.

Four governors received an "A" in this report card—Sam Brownback of Kansas, Rick Scott of Florida, Paul LePage of Maine, and Tom Corbett of Pennsylvania. Five governors received an "F"—Pat Quinn of Illinois, Dan Malloy of Connecticut, Mark Dayton of Minnesota, Neil Abercrombie of Hawaii, and Chris Gregoire of Washington.

Partisan Divide

The report is nonpartisan and data-driven, yet all the governors who received  “A” grades are Republicans and all who earned “F” grades are Democrats.

Rising debt and growing health and pension costs portend tax increases in many states. However, intense global economic competition makes it imperative that states improve their investment climates.

To that end, some governors are pursuing broad-based tax reforms, such as cutting income tax rates and reducing property taxes on businesses. The bad news is that many governors are expanding narrow "tax incentives," which clutter the tax code in an attempt to micromanage the economy.

The Good

Here’s what the top-graded governors in Cato’s “Fiscal Policy Report Card on America’s Governors: 2012” did to receive their high marks:

  • In Kansas, Gov. Brownback led lawmakers to cut the top individual income tax rate to 4.9 percent from 6.45 percent, increased the standard deduction, and lowered taxes on small business income. This was the biggest tax cut of any state in recent years relative to the size of its economy.
  • Gov. Scott presided over the end to Florida's corporate income tax for thousands of small businesses. He is pushing for cuts to property taxes on business equipment.
  • Maine’s Gov. LePage won a cut in that state’s top individual tax rate to 7.95 percent from 8.5 percent, plus simplification of income tax brackets. He also signed a bill cutting the top income rate to 4 percent over time if there are sufficient budget surpluses. LePage has said he hopes to phase out the individual income tax and get the corporate tax rate to 4 percent—a 50 percent cut in the corporate rate.
  • Gov. Corbett worked with legislators to cut Pennsylvania's Capital Stock and Franchise Tax with the goal of ending it by 2014. That tax totals $800 million of annual burden on businesses. Ending it would keep that money in the hands of businesspeople to use it to bolster their businesses and the state’s economy.

The Bad

At the other end of the grade scale are governors who worked to raise taxes, fees, and spending, sometimes turning right around and handing back tax dollars to large employers and politically connected businesses that threaten to leave because of the overall higher taxes and spending.

Illinois Gov. Pat Quinn (D) is a prime example. Sears Holdings Corp., CME Group Inc. (which operates the Chicago Mercantile Exchange), and other large Illinois employers have been promised hundreds of millions of dollars of taxpayer handouts to stay in the state. The handouts came shortly after the state raised annual tax collections an astonishing $7 billion in 2011 by jacking up the personal income tax and corporate income tax 67 percent and 46 percent, respectively.

Increasing burdens on all businesses and individuals only to reduce them on a handful of businesses with political pull is no way to boost an economy.

Chris Edwards (cedwards@cato.org) is director of tax policy studies at the Cato Institute and author of the” Fiscal Policy Report Card on America’s Governors: 2012.” He is also editor of www.DownsizingGovernment.org.

Internet Info

“Fiscal Policy Report Card on America’s Governors: 2012,” Cato Institute: http://www.cato.org/pubs/wtpapers/GRC2012.pdf