State Democrats Cutting Taxes

Democrats in Washington should take some advice from their counterparts at the state level.  A recent Wall Street Journal op-ed points out that in several states, Democratic governors and legislatures are adopting supply-side logic and enacting sweeping tax cuts to stimulate economic growth. Here are some examples from the article of Democrats with the right idea on taxes:

  • In Rhode Island: Democrats, who control 70% of the state legislature, teamed up with Republican Governor Donald L. Carcieri to enact a plan that allows residents the choice of a flat tax that cuts the top tax rate on high income earners to 5.5% from 9.9% if they voluntarily give up deductions…For good measure, the state also cut property taxes, passed a tax credit of up to $1 million for businesses to help fund private school tuition, and reformed the health insurance market by allowing small businesses to buy “stripped down” health insurance free of many costly mandates. 
  • In Arizona: Governor Janet Napolitano agreed to a 10% across-the-board cut in income tax rates
  • In Oklahoma: Oklahoma’s Brad Henry signed into law a budget that will cut rates by nearly 20%, from 6.25% to 5.25% and abolish the state estate tax.
  • In New Mexico: Another Democratic Governor who’s embraced tax cutting and benefited politically is New Mexico’s Bill Richardson. Since winning the state house in 2002, he has cut the state’s top income tax rate to 4.9% from 8.2% and cut the capital gains tax in half. “This was our way of declaring to the world that New Mexico is open for business,” Mr. Richardson tells us. “After all, businesses move to states where taxes are falling, not rising.” But don’t tax cuts produce budget deficits? Not in New Mexico, which now has a half-billion-dollar surplus and has seen tax revenues soar by 27% this year, faster than in any other state over the past year, according to the Rockefeller Institute state revenue report.

One state not on the list is New Jersey, and for good reason. Governor Jon Corzine is currently in a showdown with the Democrat-controlled legislature over the state’s budget and a proposed tax increase, a row that has prompted a statewide shutdown. Gov. Corzine wants to raise the state sales tax from 6 to 7 percent, a measure that would increase the already onerous tax burden faced by residents and businesses in New Jersey. Currently, New Jersey has the heaviest per capita property tax burden in the U.S., the fourth highest state and local tax burden, and ranks last in business friendliness. Despite this, the state has the tenth highest government debt per capita. If Gov. Corzine is looking to increase revenue, he should take a lesson from Democrats in Rhode Island and New Mexico and cut taxes instead of increasing them.