When Tax Cutting Fails to Fix Very Inconvenient Budget Problems

Revisorweb, CC BY-SA 3.0 , via Wikimedia Commons

You’ve probably seen the stories about states using budget windfalls (and some federal COVID relief money) to cut various state taxes. It’s good politics, as most politicians like playing Santa Claus, and even better politics if it means the state can avoid spending the money instead.

But are these truly the budgetary salad days some pols would have us believe? Or is all this tax cutting and good feeling covering up some very inconvenient budget problems?

According to Truth in Accounting’s Sheila Weinberg, 39 states don’t have enough money in the bank to cover the promises they’ve made to state workers, either through pensions, health care or both. And that problem is getting worse every day:

Retirement plans, such as pension and retiree health care benefits…account for the majority of state debt. TIA’s analysis shows that on average, the 50 states had only set aside 64 cents to fund pension promises and 8 cents to fund retiree health care promises. “The downturn in the market at the beginning of 2020,” explained Weinberg, “caused many state retirement plans to make far less money than is necessary to cover ever-growing liabilities. When states cannot make up investment shortfalls, then taxpayers have to make up the difference.” When states do not have enough money to pay their bills, TIA takes the money needed to pay bills and divides it by the estimated number of state taxpayers. The resulting number is a Taxpayer Burden™. The average Taxpayer Burden across the 50 states rose 27% to $9,300 from the prior year.

That’s…not what we’re hearing from state-level pols. Of course, we’re not hearing much about the accounting gimmicks many of them use to balance the books each year:

…numerous states balance budgets by using a lot of flexibility in their accounting. According to TIA, these ‘accounting tricks include:”

Inflating revenue assumptions

Counting borrowed money as income

Understating the true costs of government

Delaying the payment of current bills until the start of the next fiscal year so they aren’t included in the budget calculations

And that’s just a sample of how creative lawmakers can be. Of course, were states required to meet their current and future obligations to state workers, that would crowd out many other programs…and not a few tax cuts. But here’s the thing: generations of state governments have promised their employees generous, lifetime benefits in exchange for lower current wages. Paying for the benefits? That was always going to be someone else’s headache.

Increasingly, “someone else” looks an awful lot like us.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.

Picture of Norman Leahy

Norman Leahy

Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.

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3 Comments
    Stephen Russell

    Solutions:
    See CAGW.org for waste sources etc since 80s
    Sunset whole programs
    Merge programs?
    CUT regulations
    Term Limits
    Can Help

      stevo

      start with all government workers to go to ira or k plans and eliminate planned pensions.it will save in the long run as most companies started that in the nineties

    Wiley Weber

    Tax cuts aren’t the problem; wasteful and reckless spending is.
    Cutting education would be a good place to start, at both state and local levels (& federal), but politicians don’t dare “oppose education”. In truth, they would be supporting true education while cutting taxpayer funding. So much $ is skimmed off and diverted to insider and corrupt constituencies. Money that does flow through is wasted feeding bloated bureaucracies and progressive, anti-education initiatives (such as CRT, DEI).

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