South-Western College Publishing - Economics  
The Dilemmas of Surpluses
Subject Budget Surpluses
Topic Fiscal Policy
Key Words Tax Revenues, Expenditures, Budget Surplus
News Story

The strength of the national economy has produced large revenue gains for the states. William T. Pound, executive director of the National Conference of State Legislatures said, "For the sixth year in a row, states are expecting to see continued sound fiscal health." According to the National Association of State Budget Office, all fifty states have budget surpluses, and 39 states have a surplus of at least 5 percent of their spending. As these surpluses accumulate, states are cutting taxes and increasing their spending on education and heath care.

Many states have reduced taxes as a result of the accumulated surpluses. In each of the last five years, states have cut taxes. Last year 42 states cut taxes and a survey by the National Conference of States Legislatures indicates that at least a quarter of the states are considering reductions this year. Tax cuts have been a popular political issue in this year's state elections. State tax cuts last year amount to $5.2 billion. Texas reported the largest cuts, $1.9 billion, followed by Florida, Minnesota and Michigan.

States have been setting aside funds for a "rainy day" in the past few years. Faced with adequate cushions, states are now increasing their spending on such items as construction of roads and schools, education and health care. Nine states have increased payments to families on welfare in the current fiscal year. Most states - 40 of them - maintained the same benefit levels as in 1999. There has been a dramatic decrease in the number of people on welfare - welfare populations have dropped by 51 percent since 1993, but welfare spending per family has increased.

(Updated February 1, 1999)

1. What are the principal sources of revenues for most state governments?
2. What are the principal categories of expenditures for state governments?
3. Can states have a fiscal policy, that is, can states alter their tax and expenditure patterns to influence economic growth, price stability and unemployment? Explain your answer.
Source Robert Pear, "States Gather Big Surpluses, Benefit of a Strong Economy;" The New York Times, January 5, 2000.

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