States Are Restoring the GOP’s Fiscal Policy

By Chris Edwards

Wednesday, October 12, 2022

 

The Biden administration’s leftward economic thrust has undermined growth and spawned inflation. Yet while Republicans in Congress should be responding vigorously with free-market solutions to provide a strong policy contrast, GOP leaders seem weak and Donald Trump’s battles are distracting the party from rallying around an economic agenda.

 

The good news comes from the states where many GOP governors are pursuing small-government reforms. That is evident in the Cato Institute’s new “Fiscal Policy Report Card on America’s Governors,” which assigns grades from “A” to “F” based on each governor’s tax and spending record.

 

In a wave of reforms, 15 Republican governors have cut income-tax rates in just the past two years. And this year, the Cato report rewards an “A” to five governors:

 

Kim Reynolds of Iowa is the top governor based on her spending restraint and tax reforms. She converted Iowa’s income tax from a nine-bracket system, with a top rate of 8.98 percent, to a 3.9 percent flat tax. She also slashed the corporate-tax rate from 9.8 percent to 5.5 percent, abolished the inheritance tax, and has held average spending growth to 2.3 percent since 2017.

 

Chris Sununu of New Hampshire has cut business taxes, ended the taxation of interest and dividends, and limited average spending growth to 1.1 percent since 2017.

 

Pete Ricketts of Nebraska has cut income taxes, fended off tax hikes, and held average spending growth to 2.6 percent since 2015. He cut the corporate-tax rate from 7.81 percent to 5.84 percent and cut the top individual-income tax rate from 6.84 percent to 5.84 percent.

 

Brad Little of Idaho cut both the corporate and top individual-income tax rates from 6.93 percent to 5.8 percent.

 

Doug Ducey of Arizona fought an effort to hike the top individual-income tax rate and counterattacked by scrapping the state’s multi-rate income tax that had a 4.5 percent top rate and replaced it with a 2.5 percent flat tax.

 

Some Democrats jumped on the tax-cutting wave, too, and scored quite well on the Cato report.

 

For instance, Governor Roy Cooper of North Carolina cut income-tax rates, and Michelle Lujan Grisham of New Mexico cut the sales-tax rate. They both earned a “B.”

 

Unfortunately, many Democrats have taken a big-government approach to fiscal policy. All eight governors that received an “F” on the Cato report are Democrats: Tim Walz of Minnesota, Tom Wolf of Pennsylvania, J. B. Pritzker of Illinois, Gretchen Whitmer of Michigan, Phil Murphy of New Jersey, Kate Brown of Oregon, Gavin Newsom of California, and Jay Inslee of Washington.

 

The Cato results show a sharp party divide on taxes. While the grading system is based on objective data, it rewards permanent tax cuts. That is Cato’s bias, but Americans seem to agree, at least when choosing where to live. IRS data show that people are moving from higher-tax to lower-tax states. New York has the highest taxes in the nation and the largest outflow of residents, while 20 of the 25 lowest-tax states enjoy net inflows of residents.

 

The Cato report looks at tax and spending policies, but many GOP governors are pursuing other pro-market reforms as well. Ducey, Reynolds, and Little, for example, are leaders on occupational-licensing reforms, which increase opportunities for workers.

 

Additionally, Ducey is a leader on school-choice policies, and Reynolds, Ricketts, Little, and Sununu also support these important education reforms.

 

Little has been a champion of deregulation. He oversaw a thorough rewrite of Idaho’s regulatory code in 2019, and he says that Idaho is now the “least regulated state in the nation.” Meanwhile, Ducey says that he has “taken a baseball bat to [the rulemaking] bureaucracy” and “eliminated or improved 3,047 needless regulations.”

 

If congressional Republicans gain House or Senate majorities in November, they should look to the states for policy inspiration. Many governors are pursuing tax cuts, spending restraint, deregulation, school choice, and other small-government reforms. Trump is the past. The future of the GOP lies with leaders such as Reynolds, Sununu, Ricketts, Little, and Ducey.