March 22, 2004 | Backgrounder on Federal Budget
Conventional wisdom has long held that voters punish politicians who cut government spending. Politicians fear that they will be labeled uncaring, lose friends, and maybe even lose their jobs if they try to scale back the size of government, even for the sake of balancing a budget.
If this was ever the case, it is no longer. In the face of increasing government obligations to fund priority programs, reductions in nonessential spending are not only necessary, feasible, and responsible, but also popular . A survey of state executives makes the point clear: Regardless of party, current governors who have cut state spending to balance their budgets enjoy strong popularity. Further, their counterparts who chose to raise taxes find support waning.
During the 1990s, state spending increased dramatically, sustained by artificially high tax revenues. However, by late 2001, the tech bubble had burst, the economy had been in recession, tax revenues had declined, and nearly every state was facing a fiscal crisis. The states' responses have varied widely: Some cut spending, some raised taxes, and others used a combination of taxes and spending cuts.
From their choices, a pattern has emerged: Governors who held the line on spending have gained in popularity, while those who increased taxes have received a much chillier reception. Congress should consider this lesson while marking up the fiscal year (FY) 2005 budget.
In recent years, California has been the most outlandish case of fiscal mismanagement. The electorate recalled Governor Gray Davis (D) and sent Arnold Schwarzenegger to Sacramento with a mandate to restore fiscal sanity. The "Governator" immediately declared a state of financial crisis and attempted to cut $1 billion from the current fiscal year budget. Although the California Assembly has tried to frustrate his efforts, Schwarzenegger proposed a 2005 state budget that cuts $4 billion. Most of the proposed cuts are in welfare programs, including California's health care program for the poor and disabled.
Conventional wisdom holds that cutting these kinds of programs will damage a politician's popularity, but Schwarzenegger's cuts have had the opposite effect. His job approval-disapproval rating has improved to 56-26 in the most recent Field Poll1 and an amazing 65-19 in the Los Angeles Times poll.2 The new governor is so popular that many analysts believe Democratic-leaning California may be in play for the 2004 presidential election.
Schwarzenegger's connection with the electorate was again demonstrated on Super Tuesday, when California voters supported his positions by passing the $15 billion bond together with a balanced budget amendment and by rejecting an initiative that would have made it easier to increase taxes.
Some have suggested that Schwarzenegger's popularity is a function of his celebrity rather than his policy, but this analysis is flawed. Just when the honeymoon should be ending, Californians are backing Schwarzenegger's policies.
When campaigning for governor, Tim Pawlenty signed the Taxpayer Protection Pledge, promising to veto any tax increases. At the time, Minnesota faced a projected $1.6 billion deficit. By the time he took office, that figure had been revised upward to more than $4.2 billion. Under intense pressure from all sides--including three former Republican governors of Minnesota--to raise taxes, Pawlenty refused to abandon his pledge. In his 2003 State of the State address, he argued:
This isn't brain surgery, folks. The state is simply spending more than it's taking in. And now we need to do what any Minnesota family who faces a financial challenge would do: sit down at the kitchen table and figure it out. Families can't raise taxes to get out of a jam, and we won't either.3
By the end of the legislative session, Pawlenty had signed a $4.23 billion deficit reduction package that did not raise taxes, in spite of a state Senate controlled by the Democrat-Farmer-Labor Party.4 In fact, after a sustained struggle during which the Senate passed a $1 billion tax hike, Majority Leader John Hottinger finally resigned himself to reality: "This governor will never sign a tax increase this year." Pawlenty's principled stand has won him the respect of Minnesotans, who gave him approval ratings of 58 percent5 and 56 percent6 in two recent polls.
Tennessee's fiscal situation has been rather contentious over the past few years. Don Sundquist (R) reneged on a campaign promise and attempted to institute the state's first income tax. His move led to raucous protests in the state capital. Sundquist relented and raised the state sales tax instead. Yet, despite $1 billion in new revenues, Tennessee's fiscal health remained poor.
When Governor Bredesen took office, the state still faced a $320 million deficit for FY 2002-20037 and a projected $500 million deficit for FY 2003-2004. In response, the Democrat championed and secured across-the-board cuts of 9 percent for most departments in 2004 and has asked for 5 percent reductions in most programs for 2005. Even more important, Bredesen has ruled out any additional tax increases.
As with Schwarzenegger and Pawlenty, Bredensen's cost-cutting ways have boosted his popularity. A Mason-Dixon poll released in February showed that his job approval-disapproval rating was 72-22.8 When voters were asked in December 2003 how the budget should be balanced, 67 percent said by reducing spending, 15 percent said by raising taxes, and 13 percent said by doing both.9 Governor Bredesen seems to be following the voters' wishes.
Governor Granholm has also cut spending instead of raising taxes. In her first year in office, Granholm slashed $1.5 billion to balance Michigan's budget. Even sacred cows like state-employee compensation and education funding were not spared. A dult education was cut by 74 percent, arts project funding by 50 percent, and even public school funding by 1 percent. A January 2004 poll found her approval rating at a stratospheric 77 percent,10 suggesting that spending cuts have resonated with the people of Michigan.
Yet, for some reason, Granholm has changed tack in 2004, proposing almost $400 million in new taxes.11 It would be telling if her popularity were to decline as a result.
However, raising taxes to balance a deficit has proven unpopular. Governor Davis's attempt to cut the state deficit by tripling the car tax contributed to his recall. Other governors who have hurt their reputations by trying to tax their way out of a deficit include:
As Members of Congress craft budget resolutions and spending bills, they should take to heart this simple and clear message from the states: Voters understand how budgets work, and they respect lawmakers who keep a tight grip on the public purse. Out-of-control spending is not just irresponsible; it is a guaranteed way to lose constituents' trust.
Keith Miller is a Research Assistant in, and Alison Acosta Fraser is Director of, the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
7. The State of Tennessee and the federal government number their fiscal years differently. For example, for the State of Tennessee, FY 2003-2004 is a 12-month period beginning July 1, 2003, and ending June 30, 2004.