Economy & Budget

Bet on State Capitals, Not Capitol Hill

John McCain’s pick of reform-minded Alaska Gov. Sarah Palin as his running mate has given a lift to otherwise demoralized fiscal conservatives, but many signs still point to an increase in the size of government after the November election. Luckily, whatever happens in Washington this fall, there will be alternative venues to pass pro-growth legislation aimed at reducing the burden of government’s excessive spending habits: the 50 statehouses across the country (including Palin’s home state).

On the federal level, self-styled “populist” Democrats are predicted to pad their majority in both houses of Congress, while many Republican Party candidates keep drifting to the left to beat them at their own game. And although they have key differences in how they would approach tax policy, both Democratic and Republican presidential hopefuls threaten to boost federal outlays, which have almost doubled in real terms since 1980.

A study by the National Taxpayers Union Foundation concludes that enacting all of Barack Obama’s proposed spending initiatives would result in a net budget increase of $343.6 billion — per year. John McCain would increase expenditures by $68.5 billion annually.

Now more than ever, conservatives mustn’t lose sight of state- and local-level efforts to alleviate tax burdens on individuals and small businesses while imposing spending limits on state governments and increasing transparency in their budgetary decisions. An effective grassroots movement aimed at achieving these initiatives has been active for decades; now it takes on an even higher level of importance.

State tax burdens are an important but often-overlooked determinant of the citizenry’s prosperity. Californians have increasingly been hopping over the border to Nevada (a state with no income tax) to avoid punitive rates in the so-called Golden State. In Maryland, a doubling of the cigarette tax actually cut the state’s cigarette revenues in half as smokers sought friendlier policies in Virginia and elsewhere. The country’s wealthy octogenarians keep heading to Florida to avoid predatory state-level death taxes. As Steve Moore noted in a recent book coauthored with Art Laffer entitled Rich States, Poor States, “High taxes don’t redistribute income; they redistribute people.”
 
For more evidence linking taxation and economic success, look no further than the Tax Foundation’s rankings of state tax burdens. Ohio has the nation’s fifth-worst business tax climate (not to mention third-highest personal income tax rate) and just saw its unemployment rate jump to 7.2 percent in July — a 15-year high. Despite levying the highest personal income tax in the country, California is currently experiencing turmoil over a $15.2 billion budget shortfall.

But grassroots conservatives aren’t resigned to tax-and-spend politicians and are using every political means to fight back. A citizen-initiated ballot measure in Massachusetts that would eliminate the income tax has a real chance of passing, as does a proposal to cut North Dakota’s income tax by half. In Louisiana, a well-organized group of taxpayer advocates led the charge for Gov. Bobby Jindal’s veto of a legislative pay hike earlier this summer, as well as his line-item veto of $16 million in spending from the budget. They stand ready to continue their progress in 2009, building upon the income tax relief they secured during this session.

Oregonians will vote on whether to make federal income taxes deductible on state income tax returns, resulting in considerable relief. Pressure from taxpayer groups (bolstered by a favorable court ruling earlier in the year) blocked major transportation tax hikes in Virginia, and in South Dakota, voters will decide on a proposed plan to open up the state’s expenditures to greater public scrutiny.

Meanwhile, soaring property taxes in the midst of a decline in real estate values have mobilized homeowners against the political establishment in many places. Arizonans will have the chance to ban real estate transfer taxes at the polls, and in Nevada, there is progress toward a property tax cap modeled after California’s successful Proposition 13, which 30 years ago inspired the first modern taxpayer revolt. The activist trend is due to continue beyond 2008, and citizens in states such as Maine and Florida plan tax limit measures for future elections.

State-based pro-taxpayer efforts around the country are too numerous to list comprehensively. But in the midst of a presidential race, a Congressional logjam over domestic drilling, and hundreds of U.S. House and Senate contests, grassroots campaigns are sprouting up right in voters’ backyards. Instead of simply holding their breath in anticipation of what will happen in Washington, conservatives should be seizing the opportunity to work for pro-taxpayer policies in their own communities and foster prosperity from the ground up.

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