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Premature tax cuts bad news for states



Published: Fri, May 11, 2001 @ 12:00 a.m.



The difficulties faced by a number of states -- including Ohio -- whose legislatures cut taxes in anticipation of a continuing robust economy should serve as a strong warning to the president and Congress that banking on a surplus to offset more than a $1.35 trillion tax cut over 11 years is a dangerous fiscal strategy.

With unemployment at its highest point in 10 years, income tax collections will be lower, as will spending and saving. The purpose of government is to provide necessary services for its citizens, but providing those services requires money.

Ohio's shortfall: As we are seeing in Ohio, a projected budget shortfall may well make it impossible for the state to fulfill its responsibilities to its citizens. Members of Congress should pay close attention to what is happening in their own states and act accordingly.

In the Buckeye state, the news is not good. After relaxing on a dollar-stuffed cushion for the past few years, Columbus is looking at a $600 million shortfall. When the state's treasury was flush, the legislature passed a measure that would return money to taxpayers when the surplus hit a trigger point. But now that revenues are falling, many essential services -- like higher education -- are being cut. And the state's "rainy day" fund of $1 billion-plus won't last long if the economy doesn't rebound quickly. The surplus was not a long-lived phenomenon.

The conservative mantra in Washington, most recently articulated by President Bush, is that the surplus isn't the government's, it's the peoples. And some of it should be given back to them.

Surplus only on paper: Setting aside the obvious argument that the government is the people's -- remember "of the people, by the people and for the people" -- what is becoming critically apparent is that the surplus is only a best-case scenario. It's a projection of how much money government economists think is going to be in the treasury over the next 11 years.

If those projections don't materialize -- for example, as energy prices and unemployment goes up and businesses slow down -- instead of a surplus, we'll have a even greater national debt.

The president seems to have forgotten that the national debt, unlike the surplus, is very real. And it belongs to the people, too.




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