The Center's work on 'State Budget and Tax' Issues

The Center’s State Fiscal Project works with state officials and state-based nonprofits to develop responsible budget and tax policies that take the needs of low-income families into account. We provide information and technical assistance on a variety of issues, including strengthening state tax systems, state budget priorities, and making low-income programs more effective. We also help state nonprofits understand how federal budget and tax decisions affect states and their residents.


A Dangerous Way to “Fix” American Government

October 21, 2014 at 4:21 pm

“A dangerous proposal is circulating in states across the country that could widen political divisions and jeopardize cherished rights and freedoms,” CBPP President Robert Greenstein explains today in the Washington Post’s PostEverything blog.  He continues:

The push is coming primarily from well-organized, arch-conservative groups seeking to capitalize on the decline in public trust in government to limit the federal government’s role and spending powers.  And the method they prefer is a constitutional convention — the first since the 1787 conclave that produced the U.S. Constitution.

Under the Constitution, if two-thirds of state legislatures call for a convention to amend it, one must be convened.  Some of those pushing for a convention say that 24 of the needed 34 legislatures have approved such resolutions.  Advocates of a convention have targeted more than a dozen other states and are developing lobbying campaigns to push for such resolutions there.

The implications are enormous.  At stake, potentially, are the freedoms we take for granted under the Bill of Rights; the powers of the president, Congress and the courts; and the policies the government can or cannot pursue.  Conventioneers could alter absolutely anything about the way the United States is governed.  Some say they want to terminate all federal taxes and to require super-majorities in the House and the Senate to put any new taxes in their place.  Others want to bar the government from carrying out a number of its functions, for example by constraining its ability to regulate interstate commerce.  Whatever changes a convention approved would be enshrined in the Constitution if three-fourths of the states ratified them.

Yet the processes for impaneling the convention, selecting the delegates, setting the convention’s voting rules, and determining what issues the convention would consider and how much of the Constitution it would seek to rewrite are a mystery.  That means that under a convention, anything goes.  There are no rules, guideposts or procedures in any of these areas. . . .

Click here for the full post.

Why Money Doesn’t Walk

October 20, 2014 at 11:24 am

We’ve shown that interstate differences in tax levels have little effect on whether and where people move, contrary to claims by some tax-cut proponents.  The related claim — that people who leave a state take their incomes with them, harming that state’s economy — isn’t true either, our new paper explains.

The vast majority of people can’t take their income with them to a new state because they work for someone else.  When people leave a state, they usually also leave their job.  The income they made in that job then typically goes to the person who gets that job next; it doesn’t leave the state.

For example, consider a California sales representative who is transferred to Nevada.  What you might call “income migration” (or “money walks”) analyses would suggest that California’s economy is weakened because the sales representative moved away and took her income with her.  In reality, her income stayed with her employer and was then transferred to her replacement.  California’s economy was not harmed.

Income migration analyses also ignore the income gains for other in-state small businesses when business owners move away.  For example, if a New York doctor in private practice retires and moves to Florida, his or her patients ― and their payments ― will go to some other New York provider, increasing that provider’s income.  Also, the owner of a successful business who leaves will often sell it to someone who will continue to operate it.

Moreover, income migration analyses effectively assume that people’s incomes stay the same after they leave a state, even if they don’t find a job in the new location or moved there to retire.  That assumption further skews their results.  For example, when someone from New Jersey retires to Florida, income migration analyses claim that New Jersey’s economy lost income equal to the person’s pre-retirement salary, even though that person’s income probably would have declined even if he or she had stayed in New Jersey.

To be sure, some income does automatically follow a person when he or she leaves a state — pensions, Social Security, and investment earnings, for example.  But that represents a relatively small share of total taxable income — under one-fifth in most states.  And, as with other forms of income, much of such income that is “lost” to a state when people move out is replaced by income “gained” when others move in.

Policymakers should focus their attention on the policy choices most likely to grow the incomes of their current and future residents, and not be distracted by misleading claims about income migration.  The chief policy prescription that the income migration concept is used to justify — deep cuts in (or outright repeal of) state income taxes — would likely prove self-defeating, leading to deteriorating schools, roads, public safety, and other services that make states places where businesses want to invest and where the engineers, managers, and other personnel they need to hire want to live.

Lasting School Cuts Endanger Critical Reforms

October 17, 2014 at 10:27 am

States have imposed large cuts in general education spending — as our new report details and I explained yesterday — with serious consequences for students, schools, and the economy.  Deep state funding cuts have led to job losses, slowing the economy’s recovery from the recession.  Such cuts also have counteracted and sometimes undermined important state education reform initiatives.

School districts began cutting teachers and other employees in mid-2008, when the first round of budget cuts began taking effect.  By 2012, local school districts had cut about 330,000 jobs. Since then they’ve added back some of the jobs, but they’re still down 260,000 jobs compared with 2008 (see chart).

Deep cuts in state spending on education — including those job cuts — can limit or stymie education reform efforts.  Reforms endangered by funding cuts include:

  • Recruiting better teachers.  Research suggests that teacher quality is the most important school-based determinant of student success.  So recruiting, developing, and retaining high-quality teachers is essential to improving student achievement.  These tasks are more difficult when school districts are cutting their budgets.  Teacher salaries make up a large share of public education spending, so funding cuts inevitably restrict districts’ ability to expand teaching staffs and supplement wages.
  • Trimming class size.  Evidence suggests that smaller class sizes can boost student achievement, especially in the early grades and for low-income students.  Yet, small class sizes are difficult to sustain when schools are cutting spending and enrollments are rising.  Kansas schools, for example, have 19,000 more students than they did in 2009, but 665 fewer teachers.
  • Expanding learning time.  Many education policy experts believe that more student learning time can improve achievement.  Budget cuts make it more difficult to extend instructional opportunities because extending learning time generally adds costs.  Some states have even reduced student learning time because of budget cuts. Arizona, for example, eliminated state funding for full-day kindergarten, to which some school districts have responded by offering only a half-day program or by requiring parents to pay a fee for a full-day one, likely reducing the number of children who can attend.
  • Providing high-quality early education.  A number of studies conclude that pre-kindergarten or pre-school programs can improve cognitive skills, especially for disadvantaged children, but most states cut funding for those programs after the recession hit.  Of the 40 states that provide funding to preschools, 28 had reduced per-child funding as of the 2012-13 school year — often by large amounts.  (States typically support their preschool programs outside of their general K-12 “formula” funding, so these cuts come on top of those documented in our new report.)

These recent cuts may cost states much more in long-term economic growth than they save.  The cuts that states have enacted will weaken the future workforce by diminishing the quality of elementary and high schools.  At a time when the nation is trying to produce workers with the skills to master new technologies and adapt to the complexities of a global economy, large cuts in funding for basic education undermine a crucial building block for future prosperity.

K-12 Funding Remains Below Pre-Recession Levels in Most States

October 16, 2014 at 9:58 am

Most states continue to spend less — often far less — per student for kindergarten through 12th grade than they did seven years ago, our updated analysis of state general school funding shows.

Our review of state budgets finds that, after adjusting for inflation:

  • At least 30 states are providing less funding per student for the 2014-15 school year than they did before the recession hit (see chart).  Fourteen of these states have cut per-student funding by more than 10 percent.  (Our analysis focuses on funding distributed through general aid formulas, the primary form of state aid to local schools.)
  • The four states with the deepest cuts — Oklahoma, Alabama, Arizona, and Idaho — each have reduced per-student funding by more than 15 percent from pre-recession levels.
  • Most states are providing more funding per student in the new school year than they did a year ago, but funding generally has not increased enough to fully offset cuts in past years.  For example, Alabama is increasing school funding by $16 per pupil this year — but that’s after cutting it by $1,144 per pupil over the previous six years.
  • At least 20 states cut per-student funding this year.  In most of these states, the cuts added to those the states had made in previous years, leaving them even further behind pre-recession levels.

Click here to read the full paper.

New Jersey Going from Bad to Worse on Budget Practices

October 7, 2014 at 4:34 pm

New Jersey, which already comes up short in budget planning and budget transparency, is falling even further behind.

The state Treasury Department recently stopped publishing monthly comparisons of actual tax collections to projected collections — information that the state’s revenue status reports had included for years.  The timing is especially unfortunate given New Jersey’s recent large revenue shortfalls.  Delaying acknowledgement of sluggish revenue collections will give policymakers less time to address the problem if these shortfalls continue.

The state has also stopped publishing town-by-town data on state property tax rebates in its annual reports on property tax collections and has removed prior-year reports from its website.  This makes it very difficult to see how state and local policies affect property tax bills across the state.  The state Assembly recently passed, with near unanimous support, a bill requiring publication of the data.  But the bill needs state Senate approval plus the governor’s signature to become law, and Governor Chris Christie hasn’t said if he will sign it.

New Jersey had plenty of room for improvement even before these changes.  It received the second-lowest score in our survey of how well states use ten proven budget planning tools to chart their fiscal course accurately and make mid-course corrections when needed.   It also fared poorly (30th out of 50) in the U.S. Public Interest Research Group’s latest ranking of state budget transparency.

New Jersey should stop digging this hole deeper and resume publication of data that can help the state plan.  And the state should go even further — by including long-term revenue and spending forecasts in its annual budget, building more consensus into its revenue estimating process, and providing more information on the cost of individual “tax expenditures” (tax credits, deductions, and exemptions), for example.

Better budget planning and more transparency would help New Jersey policymakers make more-informed decisions.