LePage one of only four governors to get an "A" from Cato Institute

The Cato Institute in Washington, D.C. has released the “Fiscal Policy Report Card on America’s Governors: 2012,” and Governor Paul LePage is only one of four governors in the country who has received an “A.”

The report is Cato’s signature state fiscal policy study. See the report  here.

The report uses statistical data on spending and taxes from 2010 to 2012 and awards the governors grades A to F, based on two spending variables (per capita and actual change in spending), one revenue variable (dollar value of tax changes) and four tax variables (changes in the personal and corporate income tax rate, general sales tax rate and cigarette tax rate). It also identifies both negative and positive fiscal policy trends at the state-level.

Governor Paul LePage received an A for fiscal policy over the past two years, one of only four who received the highest grade for cutting spending and taxes the most.

The highest-scoring governors are those who have supported the largest tax and spending cuts. The four governors who received grades of “A” are all Republicans: Sam Brownback of Kansas, Rick Scott of Florida, Tom Corbett of Pennsylvania and Paul LePage of Maine.

Five governors who were awarded an “F”—all Democrats—are: Pat Quinn of Illinois, Dan Malloy of Connecticut, Mark Dayton of Minnesota, Neil Abercrombie of Hawaii, and Chris Gregoire of Washington.

This is the report’s section on LePage:

Paul LePage of Maine signed into law a major income tax cut. The reform reduced the top individual tax rate from 8.5 to 7.95 percent, simplified tax brackets, and reduced taxes on business investment. LePage then signed legislation to reduce the top individual tax rate to 4 percent over time if there are sufficient budget surpluses.

The governor says that his ultimate goal is to phase out the individual income tax completely, and he wants to cut the corporate tax rate from 8 to 4 percent. LePage has also focused on spending cuts. He signed into law reforms to reduce the costs of welfare, health care, and pensions, and he wants to end funding for Maine Public Broadcasting, calling it “corporate welfare.”

Some excerpts from the report:

The recovery from the recent recession has been very sluggish, and the nation’s governors have struggled with the resulting budget deficits, unemployment, and other economic problems in their states. Many reform-minded governors elected in 2010 have championed tax reforms and spending restraint to get their states back on track. Other governors have expanded government with old-fashioned tax-and-spend policies.

That is the backdrop to this year’s 11th biennial fiscal report card on the governors, which examines state budget actions since 2010. It uses statistical data to grade the governors on their taxing and spending records—governors who have cut taxes and spending the most receive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.

Many states are facing major fiscal problems in coming years. Rising debt and growing health and pension costs threaten tax increases down the road. At the same time, intense global economic competition makes it imperative that states improve their investment climates. To that end, some governors are pursuing broad-based tax reforms, such as cutting income tax rates and reducing property taxes on businesses. The bad news is that many governors are expanding narrow “tax incentives,” which clutter the tax code in an attempt to micromanage the economy.

This report discusses these trends and examines the fiscal policy actions of each governor. Hopefully, policymakers in more states will be encouraged to follow the fiscal reform approaches of the top-scoring governors.

Governors play a key role in state fiscal policy. They propose budgets, recommend tax changes, and sign or veto tax and spending bills. When the economy is growing, governors can use rising revenues to expand programs, or they can return extra revenues to citizens through tax cuts. When the economy is stagnant, governors can raise taxes to close budget gaps, or they can cut spending.

This report grades governors on their fiscal policies from a limited-government perspective. The governors receiving an “A” are those who cut taxes and spending the most, while the governors receiving an “F” raised taxes and spending the most. The grading mechanism is based on seven variables, including two spending variables, one revenue variable, and four tax rate variables. The same methodology was used on Cato’s 2008 and 2010 report cards.

The results are data-driven. They account for tax and spending actions that affect short-term budgets in the states. But they do not account for longer-term or structural changes that governors may make, such as reforms to state pension plans. Thus, the results provide one independent measure of how “fiscally conservative” each governor is, but they don’t reflect all the fiscal actions that governors may make.

Tax and spending data for the report came from the National Association of State Budget Officers (NASBO), the National Conference of State Legislatures (NCSL), the Tax Foundation, the budget agencies of each state, and news articles in State Tax Notes and other sources. The data cover the period January 2010 to August 2012, which was a time of modest budget expansion in most states.1 The report covers 48 governors. It excludes Mississippi’s governor because of his short time in office, and it excludes Alaska’s governor because of peculiarities in that state’s budget.