Surpluses, elections fuel call for more tax cuts Experts predict at least half the states will enact cuts as the economy grows


ATLANTA -- With the economy refusing to cool, with at least 30 states sitting on sizable surpluses and with gubernatorial and legislative elections scheduled in most states, tax-cut fever is once again sweeping the land as legislatures prepare to open their 1998 sessions.

Experts on state politics and fiscal affairs predict that at least half the states will enact tax cuts of some magnitude this year, just as they have in each of the past three years.

As tax cutting has become an increasingly bipartisan initiative, the debate in many states is no longer whether taxes should be reduced but which ones should be cut and by how much.

Even before lawmakers return to their capitals, dozens of tax-cut proposals have been floated in an effort to outmaneuver the political opposition and to snatch election-year credit for returning money to the voters.

Gubernatorial elections will be held this year in 36 states, and legislators face elections in 46 states.

A survey last week found that either governors or legislative leaders in at least 26 states have started calling for tax cuts, well before any governor has proposed an executive budget.

In Georgia's capital, for instance, Gov. Zell Miller, a Democrat, and the Democratic leaders of the House and Senate appeared together in an unusual show of unity last month to announce support for a plan to cut personal income taxes by $205 million.

They have pledged to enact the plan, which would increase personal income tax deductions, within the first two weeks of the legislative session, which begins Jan. 12.

In most places, this year's tax reduction proposals have been relatively modest, often because larger tax cuts were enacted in previous years and because lawmakers have lingering memories slashing budgets and raising taxes in the recession of the early 1990s.

But nationwide, authorities on state fiscal matters predict, the aggregate amount of state tax cuts in 1998 is likely to match or exceed that of 1997.

As in Washington, that is a reflection of both the fiscal conservatism that has been embraced by both political parties in the Clinton era and the robust health of the economy.

"I think there will be somewhat larger tax cuts in 1998 than in 1997 because, after all, this revenue growth has sustained itself longer than anyone expected," said Ronald K. Snell, director of the economic and fiscal division of the National Conference of State Legislatures.

"My guess is that they would exceed 1997 just based on the number of states in which governors and legislative leadership are talking about them."

Another authority on state finances, Hal Hovey, the editor of State Budget and Tax News, predicted, "There will be some form of countable, calculable tax cuts in at least 25 states."

Snell said that 27 states cut taxes in 1997 for a net national tax reduction of $2.5 billion. In 1996, 29 states cut taxes worth $4 billion; in 1995, 25 states cut taxes worth $3.3 billion, he said.

In enacting tax cuts over the past three years, many governors and legislative leaders have underscored the need to compensate taxpayers for the tax increases they endured in the early 1990s. And as tax cutting has become a national priority, states have felt pressure to reduce tax rates to remain competitive with their neighbors.

Virtually every kind of tax is vulnerable to reduction this year, although Hovey said he sensed declining interest in cutting business taxes. He said that may be because job creation had become less urgent with the national unemployment rate at 4.6 percent, the lowest level in 24 years.

Property taxes on motor vehicles have become a new target after the Republican candidate, James S. Gilmore III, won last year's gubernatorial race in Virginia by promising to cut that state's onerous car taxes.

In some states, governors and legislative leaders have started to warn that further tax cutting would place services at risk if the economy deteriorates.

Pub Date: 1/04/98

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