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Media Contact: (202) 789-5200 State Budget Shortfalls Are the Result of '90s Overspending WASHINGTON-State governments are experiencing large budget gaps this year and, according to a Briefing Paper released today by the Cato Institute, the shortfalls are the result of excessive spending during the 1990s. The authors of the paper argue that the deficits should be eliminated by cutting budgets-not by relying on higher taxes or a federal bailout. Cato Director of Fiscal Policy Chris Edwards, Cato Senior Fellow and Club for Growth President Stephen Moore, and Phil Kerpen, of the Club for Growth, collaborated on the new study, "States Face Fiscal Crunch after 1990s Spending Surge." They present detailed data showing that budget shortfalls are the result of "rapid tax revenue growth during the 1990s to fuel an unsustainable expansion in spending." State legislatures should have given the excess tax revenue back to consumers in the form of rebates and permanent tax cuts to prevent overspending, according to the authors. In the future, "states should impose tax and spending growth caps to prevent budgets from growing too quickly during the next boom." To deal with the current budget gaps, many state governments are considering tax increases, and Democratic governors are asking the federal government for a $50 billion bailout. The authors argue that the tax cuts of the 1990s are not to blame for the deficits and they provide state-by-state figures to show that despite those tax cuts, tax revenue grew rapidly, as did spending. They provide budget data for every state to demonstrate that overspending is at the root of the budget shortfalls. Additionally, they examine the budgets of California, New York, Virginia, and Maryland as examples of the poor budget policy embraced by most states during the 1990s. The authors conclude: "To avoid running into serious budget crunches in the future, states should adopt budget caps that prevent excessive growth in revenues and spending during economic booms."
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