Monday, June 26, 2006

The Beauty of Tax Cuts

Among other places, New York City and New York State are awash with budget surpluses according to the WSJ editorial this morning ("States of Plenty").

"America's governors must feel as if they've won their own state lotteries. Thanks to the snappy growth of the U.S. economy over the last three years, state treasuries are now overflowing with tax collections.

At least 40 states are in the black, and only a handful, such as the Gulf states wrecked by Hurricane Katrina and perpetually hapless New Jersey, are still spilling red ink. In 2005 state and local revenues grew by 10.5%, according to Census Bureau data, and so far this year tax receipts in most states are climbing at close to that level. California's income tax revenues in April were up an astonishing 55% from last year. Oklahoma is so flush it has exceeded its legal limit on its rainy day fund.

This is all in contrast with 2002-03 when states were scrambling to pay for the many new spending commitments they'd made in the 1990s. Consider the amazing turnaround of California and New York City. Four years ago both were teetering on insolvency, but now Governor Arnold Schwarzenegger and Mayor Michael Bloomberg are boasting multi-billion dollar surpluses. They prove that among the biggest beneficiaries of President Bush's 2003 tax cuts have been state and local governments, even though tax cut opponents predicted states would be losers...."

Remember, New York is the financial capital of the world. The key word here is “capital.” Bush’s supply side tax cuts created record low tax rates on capital, and although most of New York’s elected federal representatives voted against them, the Gotham economy is booming.

So now, the question is, with a $7.5 billion in budget surpluses, where are the tax cuts in New York? The Kudlow tax reform commission recommended abolishing state taxes on capital gains, dividends and estates, along with lower income tax rates for individuals and corporations.

With a huge budget surplus, why isn’t that money being used to slash taxes?