Jared Meyer, fellow at the Manhattan Institute for Policy Research and co-author of the book “Disinherited: How Washington Is Betraying America’s Young,” recently published an article in the Ripon Forum Magazine in which he took an in-depth look at the specific challenges facing three Republican governors, Bruce Rauner (Illinois), Charlie Baker (Massachusetts), and Larry Hogan (Maryland), who were each elected to lead a traditionally blue state after running on platforms of bringing economic growth through tax reform.
“Can (these governors) deliver on their promises?” Meyer wrote. “The economies that the governors inherited were stagnating. In addition to budget shortfalls and long-term problems from unfunded pension liabilities, Illinois, Maryland, and Massachusetts all had lower (gross domestic product) growth than the U.S. average in 2014. In the newly released American Legislative Exchange Council report “Rich States, Poor States,” Massachusetts is ranked 35th in the Economic Performance Rank. Maryland receives a ranking of 31, and Illinois is only ahead of four other states at 46.
“Lowering tax rates would help spur the states’ economies, which is a necessary step for states to shore up their finances,” Meyer continued.
“Lower rates deliver better results than provisions that benefit individual, often politically-connected, industries or companies. Government bureaucrats and politicians are simply incapable of correctly picking winners and losers through grants and special tax treatment, and doing so does not lead to sustainable growth.”
In the article, Meyer looks at the specific nature of each of the highlighted state’s economic issues.
“Illinois has been notorious for handing out generous tax breaks to specific corporations,” he wrote. “Tax breaks passed out in 2011 to just two companies, Sears Holding Corp. and CME Group Inc., cost the state over $330 million a year. Illinois policymakers justified the handout by claiming that major companies would leave if they were not given a deal. However, any tax carve-out reduces the tax base, which requires an unfair increase of the tax rate for everyone else in order to maintain consistent revenue for the state. It is far better for states to lower their rates and allow for an equal playing field.
“Property tax burdens in Massachusetts are the sixth-highest in the nation,” Meyer wrote. “Removing tax carve-outs, such as those for solar and wind power, would allow Gov. Baker to make Massachusetts’s property taxes more competitive with other states’ rates, possibly reversing the trend of net income leaving Massachusetts from when residents move to other states, which exceeded $10 billion from 2000 to 2010 (the latest data available).
“In Maryland, Gov. Hogan needs to focus on lowering the state’s individual income tax rates, the 45th most burdensome in the United States,” Meyer wrote. “Doing so would benefit many more residents than creating additional carve-outs. Maryland’s previous governor, Martin O’Malley (D), was notorious for increasing taxes. Maryland voters rejected this approach, and overwhelmingly chose Hogan over O’Malley’s hand-picked successor, Anthony Brown.
“Rauner, Hogan, and Baker were all elected to restore sanity to their states’ tax codes,” Meyer concluded. “To succeed, the new governors must focus their attention on eliminating tax carve-outs and promoting simple, neutral tax systems, with rates levied across a broad base at lower rates. This, combined with targeted spending cuts, would go a long way towards improving the states’ troubled budgets. If the first-term governors can succeed in tax reform, all three states will improve their economic rankings, and the stage will be set for long-term economic growth.”