Copyright 1999 The Houston Chronicle Publishing Company
The Houston Chronicle
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January 03, 1999, Sunday 2 STAR EDITION
SECTION: OUTLOOK; Pg. 2
LENGTH: 761 words
HEADLINE:
Bush, other governors in enviable position
BYLINE:
DAVID S. BRODER; Broder, a Pulitzer Prize-winning political reporter, writes a
nationally syndicated column from Washington, D.C.
BODY:
GOVERNMENT begins again this week, not just
in scandal-plagued Washington, but in the 50 state capitals. In all but a few,
there's never been a better time to be a governor or state legislator. They
should enjoy it. It may not last.
At the moment, state governments are
rolling in money. A compilation released last week by the National Governors'
Association and the National Association of State Budget Officers said budget
surpluses in fiscal 1999 are projected at $ 31 billion. That's 7 percent of
budgeted expenditures, almost twice the surplus percentage in the federal
budget.
Not everyone is smiling. Hawaii is stuck in the Asian economic
malaise. Alaska has seen its oil revenues dwindle. Both have had to cut their
budgets. But in the other 48, it's mostly a question of the rich and the richer.
Most governors running for re-election last November could brag of
cutting taxes and boosting spending for education, roads and local property tax
relief. Two-thirds of the states cut taxes last year. That makes for contented
voters and smiling officeholders.
At the same time, almost all state
employees are getting raises, averaging almost 4 percent. New classrooms are
being built and, with welfare rolls down dramatically, recipients are often
getting more help to make them employable.
It is such a rosy picture
that Raymond C. Scheppach, executive director of the NGA, seemed almost
apologetic about pointing out the hazards that may lie around the next bend in
the road.
They begin with the economy. This growth cycle has lasted for
most of the decade and it shows no sign of ending. But there are trouble spots:
Manufacturing, agriculture, mining and the oil patch are all feeling the squeeze
from the Asian/South American slump.
Health-care costs are rising again,
driving state Medicaid spending upward. Half the Medicaid recipients are now in
managed care, but the fees in those programs are climbing almost as fast as in
the old fee-for-service delivery system. Long-term care is a growing burden.
Those factors are largely outside the control of governors or state
legislators. But there are other threats they could avert - or mitigate - in
these golden years, if they were inclined to do so. Unfortunately, they are not.
The sales tax, as Scheppach pointed out, provides a bit more than 40
percent of state revenues. But it is a shaky reed. By and large, it applies only
to goods, not services, and it is the service sector that is really growing.
Some governors have tried to expand sales taxes to services, but they have run
into tough resistance from health-care providers, attorneys, barbers,
beauticians, etc. Texas Gov. George W. Bush suffered the biggest defeat of his
first term when he tried to extend the sales tax into the
service sector.
The second problem is that states rarely are able to
collect sales taxes on transactions conducted by mail-order
firms or on the Internet. In theory, some of these transactions
are subject to taxation, but enforcement is lax.
This was the subject of
a big lobbying battle in Congress last year, but the best concession the states
could extract was the creation of a commission to study the problem over the
next 18 months.
Scheppach is gloomy about anything being done. "It is an
uphill battle in Congress," he said, because there is strong resistance to
slowing the growth of the Internet with taxes.
Currently, the states are
losing about $ 4 billion a year in taxes on mail orders and Internet purchases.
By 2002, Scheppach estimates, that revenue drain will grow to $ 15 billion or $
20 billion.
But that is not the worst of it. As Main Street and mall
merchants increasingly find their competition coming through the mails and
cyberspace, political pressure will grow to eliminate their competitive
disadvantage by scrapping the sales tax on face-to-face purchases.
Given
that prospect, I asked Scheppach whether states were considering a shift away
from the sales tax and toward the income tax as their future revenue base.
"Unfortunately, the trend is the other way," he said. "The sales tax seems to be
more politically acceptable than the income tax." Income taxes were cut in 29
states last year, while only 19 reduced sales taxes.
Nine states have no
income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee,
Texas, Washington and Wyoming. In many of the others, the rates are such that
affluent families get off very lightly.
This is a luxury that looks
increasingly shortsighted, a challenge to the happy talk in today's state
capitols.
TYPE: Editorial Opinion
LOAD-DATE: January 5, 1999 
