LANSING – The states that cut taxes the most during the 1990s, including Michigan, faced larger overall fiscal problems and economic performance than did those states that were more restrained in their tax cuts, said a study released by the Washington D.C. organization the Center on Budget and Policy Priorities.

The report from the liberal organization that focuses on the effect of federal and state policies on low- and moderate-income individuals said that the 16 states that cut their tax revenues by at least 7 percent during the 1990s saw larger budget shortfalls when the recession of 2000-01 hit and most continue to have budget problems.

Many of the states also enacted larger tax increases during the downturn than did other states – Michigan enacted no general tax increases, but did raise the tobacco tax twice – the report said, and overall those states have seen slower income growth than other states, 1.5 percent compared to 1.9 percent for the other states.

But a spokesperson for the conservative Mackinac Center for Public Policy questioned whether the study looked at other factors, such whether a state is a right-to-work state, when drawing its comparisons on economic factors.

Michigan was one of 10 states – the others being Arizona, California, Georgia, Iowa, Maine, Maryland, Minnesota, Pennsylvania and Washington – that cut total revenues by 7 percent to 10 percent during the 1990s. During the administration of former Governor John Engler the Legislature enacted more than 30 tax cuts.

Another six states – Colorado, Connecticut, Delaware, Massachusetts, New Jersey and New York – cut their tax revenues by more than 10 percent, the CBPP said.

But the CBPP study said that since the tax cuts in 1990s those top 16 states have seen an average increase in payroll employment of .4 percent compared to .9 percent in the other 34 states. Total unemployment also went up by .9 percentage point in those 16 states compared to .3 percentage point in the other states. And personal income grew by 1.5 percent from 2001 to 2006 in those 16 states while it grew by 1.9 percent in the other 34 states.

The study also said that those 16 states had budget reserves of 9.5 percent when the boom stopped compared to reserves in the other 34 states of 11.5 percent.

And eight of the 16 tax cutting states, including Michigan, have seen bond rating downgrades in 2001, 2002 and 2003, while in the other 34 states there were only seven bond rating downgrades.

The CBPP said this data is relevant since many states have reported increases in overall budget surpluses in recent years and may consider more tax cuts. “Claims that tax cuts might boost jobs and wages should be scrutinized with a great deal of skepticism,” the CBPP said.

But Michael LaFaive, director of fiscal policy for the Mackinac Center, said the other states could have seen higher growth through factors such being a right-to-work state. Such policies effectively trump even state tax cuts because they eliminate an effective tax on labor by giving workers the ability to choose whether to join a union, he said.

And with the state’s economic troubles so extensive, LaFaive questioned how the state would have fared if it had not cut taxes so extensively in the 1990s.

Greg Bird, spokesperson for the State Budget Office, said the office had not done a formal review of the study but that it seemed to confirm what Governor Jennifer Granholm has said that tax cuts are not the only way to grow the economy.

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