Small-government Texas, touted by Gov. Rick Perry as a model of fiscal health last year, is facing a budget deficit in the neighborhood of $25 billion, according to the Center on Budget and Policy Priorities. It’s no surprise that New York Times columnist Paul Krugman interprets the news as more evidence that the dominant contemporary Republican approach to government– slash-spending, shrink social services, repeat– is bad economic policy. Krugman has been battling the accepted logic of narrow tax-slashing policy-making for years but, as the doors open on the new Republican-controlled Congress, his arguments will find even less traction with lawmakers. Krugman’s warning about the crisis in Texas, however, may resonate in Colorado, which has been forced by the recession to introduce historic spending cuts the last two years. The legislative session is set to begin here this week and for months Republican lawmakers have been talking about reinstating tax breaks lifted last year as a top priority.
The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill. Now what?
Given the complete dominance of conservative ideology in Texas politics, tax increases are out of the question. So it has to be spending cuts.
Yet Mr. Perry wasn’t lying about those “tough conservative decisions”: Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance. It’s hard to imagine what will happen if the state tries to eliminate its huge deficit purely through further cuts.
I don’t know how the mess in Texas will end up being resolved. But the signs don’t look good, either for the state or for the nation.
Right now, triumphant conservatives in Washington are declaring that they can cut taxes and still balance the budget by slashing spending. Yet they haven’t been able to do that even in Texas, which is willing both to impose great pain (by its stinginess on health care) and to shortchange the future (by neglecting education). How are they supposed to pull it off nationally, especially when the incoming Republicans have declared Medicare, Social Security and defense off limits?
As early as September, state GOP lawmakers were saying they would work to lift what they called the “dirty dozen tax increases” passed in the spring. They were referring to not strict tax increases but mostly suspended or eliminated sales-tax exemptions and tax credits.
Reported estimates put the revenue generated for the state this coming year through the lifted exemptions at $124 million. Since 2008 the Democratic-controlled state government closed shortfalls of roughly $5.2 billion in the state budget. Many analysts agree that lawmakers narrowly focused on spending cuts are missing the fact that there is much revenue owed to the state, for example, that isn’t even being collected.
At an Interim Committee on Fiscal Stability held in July 2009, Senior Analyst at the Colorado Fiscal Policy Institute Carol Hedges made the case for revenue, setting up lawmakers to look at tax exemptions and credits in the following session.
“We believe history shows we cannot cut our way out of our perpetual budget crisis. It is time to expand the scope of our review to include the revenue side of the equation,” she said at the time.
It’s not clear how much more revenue there is to find. Formal tax increases here, as in Texas, are a political nonstarter. Yet lawmakers again have major cuts to make to balance the budget in 2011.