Republican Governors Start Learning to Like Tax Hikes

Grover Norquist, president of Americans for Tax Reform (ATR), speaks at the Bloomberg Washington Summit in Washington, D.C., U.S., on Tuesday, May 1, 2012.

Photographer: Joshua Roberts/Bloomberg

Republican leaders who control U.S. states are confronting the consequences of no-new-tax pledges as they face shortfalls and try to preserve education and infrastructure.

Nevada, Kansas and Alabama have enacted or are debating increases in taxes on sales, tobacco, corporate income and other items, and six others have passed higher fuel levies despite a small-government dogma. In Louisiana, Republican lawmakers and Governor Bobby Jindal have been engaged in a near-theological debate about what constitutes a tax increase as they seek to close a $1.6 billion budget gap.

Across the nation, 21 states have yet to pass budgets for fiscal 2016, which begins July 1 in most states. After years of post-recession spending cuts and tepid revenue growth, those that came under Republican control with the Tea Party’s rise have reached the limits of austerity. Some Republicans are even willing to violate a pledge backed by anti-tax crusader Grover Norquist to oppose all increases.

“There’s a threshold, even for Republicans, where they don’t want to cut spending any further,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington.

States moved aggressively to cut taxes after Republicans took control of 29 governor’s offices and 25 legislatures in 2010. The party increased those numbers to 31 and 30, respectively, after elections in 2014, according to the National Conference of State Legislatures.

Seventeen states cut taxes significantly in 2013, 14 last year and a similar number will in 2015, said Jonathan Williams, vice president at the Center for State Fiscal Reform at the American Legislative Exchange Council, an Arlington, Virginia-based nonprofit that crafts bills sought by corporations.

At the same time, aggregate state general-fund revenue and spending haven’t recovered on an inflation-adjusted basis to levels before the 18-month recession that started in December 2007, according to the budget officers group. That’s forced politicians to make cuts and tap reserves, and given some a newfound appreciation for taxes.

Nevada Governor Brian Sandoval, a two-term Republican, and the legislature his party controls, approved the largest onetime increase in state history this year to raise money for schools. It’s a $1.1 billion plan that pays for initiatives such as expanding full-day kindergarten.

Sandoval has said he had no choice with a shortfall caused by declining mining and gambling revenue, as well as a need to improve the worst high-school graduation rate in the U.S. Republican Senator Don Gustavson said that “throwing more money at the problem is not the answer.”

Yet Moody’s Investors Service said the action is “credit-positive” for the state, whose debt it rates Aa2, third-highest level of investment grade. It addresses a gap in the budget and “will stabilize the finances of the state and its school districts,” the company said in a June 8 report.

Alabama Standoff

Alabama Governor Robert Bentley, a two-term Republican who has signed the no-new-taxes pledge, on June 4 vetoed a general-fund budget passed by the Republican-led legislature that didn’t include $541 million in new taxes he proposed. He will call a special session before the fiscal year begins Oct. 1, his office said.

Bentley has said he spent his first term making cuts and improving efficiency, and that now the only path forward is to raise taxes.

In Kansas, two-term Republican Governor Sam Brownback has said he would accept increasing the sales tax and higher tobacco levies to fill a $400 million shortfall after the state cut taxes in 2012 and 2013 to create what he has called a free-market laboratory.

The Republican-led House and Senate have yet to agree on a tax plan in what already is the longest legislative session in state history.

Senator Jacob LaTurner, a first-term Republican, said it isn’t easy violating a pledge not to raise taxes. The state has cut enough, he said.

“Since the Great Recession started, Kansas has been scaling down government,” Turner said. “We’re in a position right now that the budget didn’t balance, and something had to give.”

What may give is the “Taxpayer Protection Pledge.”

Gut Check

Americans for Tax Reform, which Norquist founded in 1985, offers the oath to every candidate for state and federal office and all incumbents. It commits an elected official to vote against or veto “any and all efforts to increase taxes,” and almost 1,400 have signed it, the group said.

Norquist called states increasing taxes “outliers” whose leaders aren’t stalwart enough to avoid overspending and to spurn forbidden fiscal fruit.

“Raising taxes is what people do when they can’t govern,” Norquist said.

The strain of trying to raise revenue without violating the pledge is most evident in Louisiana.

Jindal, a two-term Republican governor and expected presidential candidate, has threatened to veto tax increases unless legislators also pass a $350 million “offset.”

The arrangement is byzantine:

It would create a new fee for college students -- Norquist doesn’t consider fees taxes. Then, the state would give them an equivalent tax credit. The students would assign the credit to the state’s university system, which would then in turn forgive the students’ fees.

Because the never-paid fees aren’t taxes, the equivalent credit can then can be said to offset increases in taxes that actually would be paid, said Jan Moller, director of the Louisiana Budget Project, which advocates policies that benefit low- and middle-income people.

The measure satisfies the pledge, Norquist said this week in response to a letter from state legislators trying to block the complicated plan. The letter asked Norquist to approve raising revenue without resorting to a “purely fictional, procedural, phantom, paper tax credit.”

After fighting the credit for weeks, the House approved it late Thursday, clearing the way for a budget and tax increase deal Jindal isn’t likely to veto, the Baton Rouge Advocate reported.

Jindal “made a promise not to raise taxes on the families or businesses of Louisiana,” said Kyle Plotkin, Jindal’s chief of staff. “He held the line.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE