Regression results spending change FY2009-2010

Changes in Taxation

Most States have raised their taxes from FY2009 to FY2010. The average tax increase was about 1.6% of total state expenditures for 2010. Five states managed to reduce taxes in 2010. Some of these are states with better than average economic performance, such as North Dakota. Others, who have reduced their taxes, including Alaska and Minnesota, perform better on the economic indicators, but their substantial predicted Budget shortfalls for 2010 (see table 1.2) are evidence that there are also political and policy motivations behind these tax cuts. Indeed, both then Republican Governors Sarah Palin (AK) and Tim Pawlenty (MN) advocate tax cuts and spending decreases for sound fiscal policy.[34] While many states have used tax measures to counter their economic stress, a substantial number of states (16) have managed to avoid tax increases, most likely due to political pressure. Partisanship of state governors had no significant effect on tax changes. Furthermore, multivariate analysis reveals all independent variables, including changes in unemployment and state governor opposition to stimulus funds, to be insignificant predictors of net tax measures in 2010.

Table 1.6

Regression results for the change in taxes, 09-10.

The case of the three obvious outliers who have all increased taxes much more heavily than the other states, that is, Illinois, California and Oregon, is interesting. While each of these states has experienced moderate to high increases in unemployment, they fall all over the spectrum when it comes to budget shortfalls. Oregon, under the guidance of Democratic Governor Ted Kulongoski, has seen drastic increases in its unemployment, and yet has managed to keep its budget shortfalls largely in check. Governor Kulongoski puts fiscal responsibility and balanced budgets at the top of his priorities[35], and the state’s fiscal behaviour is evidence of this. Illinois and California, on the other had, are experiencing some of the most severe budget shortfalls (See Table 1.2), despite their relatively high net increases in tax measures.

Date: 2016-04-22; view: 547