Editor’s note: This article is adapted from the Spring 2013 issue of City Journal.
Shortly after Barack Obama won reelection in November, New Jersey Governor Chris Christie pointed out that Republicans’ cloudy political prospects had a bright silver lining. “One of the reasons you have 30 Republican governors in America, and why we’re the only organization to add Republican strength,” Christie said, “is because people see us getting things done.”
Christie’s stance countered most of the elite postelection commentary, which gleefully pronounced the Republican Party’s political irrelevance. But the governor was right.
Since Obama first took office in 2008, Republicans have picked up a net nine governorships, bringing their total to 30 states, which hold nearly 184 million Americans. In 24 of those states, containing 157 million Americans, Republicans also control the legislatures.
Democrats boast similar power in just 12 states, with a population of 100 million. Even Republicans’ unimpressive national showing last November didn’t reverse their state-level momentum.
[pullquote]
The next-wave Republican governors have ignored proclamations that President Obama’s victories have vaporized fiscal conservatism and opened a new era of American big government.
At a time when Washington policymakers seem paralyzed by our toughest problems, these state-level revolutionaries have restrained government growth and radically reformed local tax codes.
They’ve made their states friendlier to business, reshaped government-employee pension systems to reduce state debt, and restrained the power of public-sector unions over state and local budgets. Some have even proposed eliminating income and corporate taxes.
Christie, whose stock has risen in New Jersey as he heads into a reelection battle this year, believes that the next national leadership of the Republican Party will emerge from the ranks of its effective governors. “I don’t think this is a core philosophical examination we have to go through,” he has observed. “What this is about is doing our jobs.”
Few observers predicted this Republican resurgence back in 2008, when elections not only handed the Democrats the White House and Congress but also cemented their control of 29 governors’ mansions.
Even as the country seemed to lurch leftward, however, state voters began to revolt against Democratic governors’ tax increases.
In 2009, Christie defeated Democratic incumbent Jon Corzine with a platform that rejected new taxes. Over the previous eight years, Corzine and his Democratic predecessor Jim McGreevey had raised taxes by more than $5 billion.
McGreevey boosted taxes and fees $3.6 billion between 2002 and 2004 alone, raising everything from income taxes to levies on home sales. Corzine followed in 2006 with his own $1.1 billion sales-tax hike.
Three years later, he slapped a temporary income-tax surcharge on households making more than $400,000 a year, part of another proposed $1 billion in new taxes. But actual tax collections imploded, leaving Christie with a $4 billion budget deficit when he took office in 2010.
Christie ran enormous political risks in trying to shrink that deficit. Despite discontent over the high taxes, polls showed that voters wanted higher levies on the rich, so that the state could continue a popular program of property-tax rebates for homeowners. And though the voters favored winning concessions from government workers, they also wanted the state to keep subsidizing public schools richly.
Christie disagreed. He chose not to renew the surcharge on high earners and slashed aid to municipalities. He also reduced the property-tax rebates; after all, property taxes are imposed by localities, so the rebates amounted to a state subsidy that let cities and towns avoid making tough budget decisions.
When homeowners complained, Christie urged them to vote against the expensive municipal and school budgets that were driving their ever-rising property taxes. Voters responded, defeating nearly 60 percent of the school budgets proposed in 2010. Christie’s reforms slashed state spending by nearly 9 percent and balanced the state budget without new taxes.
Christie then pressed the legislature to pass reforms that restrained municipal spending, including a cap on annual property-tax increases.
He also signed off on roughly $347 million in business tax cuts, though he has yet to find the revenues to make good on his pledge to lower Jersey’s income tax. Christie’s favorability rating was just 44 percent after his first budget passed, but as Jerseyans watched his strategy play out, his popularity grew.
Even before his effective and sympathetic response to Superstorm Sandy, more than 50 percent of voters approved of the job he was doing; since then, his popularity has soared.
“Despite the challenges that Sandy presents for our economy, I will not let New Jersey go back to our old ways of wasteful spending and rising taxes,” Christie recently announced. “We will deal with our problems, but we will continue to do so by protecting the hard-earned money of all New Jerseyans first and foremost.”
A year after Christie’s victory came the 2010 elections, when 26 governorships were up for grabs. Republicans wrested 11 of them from Democrats and lost only five, an impressive tally.
Perhaps the most ambitious of the 2010 crop of reform governors is Michigan’s Rick Snyder, a former venture capitalist with no previous experience in office.
Snyder initially received less national attention than Christie or Wisconsin’s Scott Walker, whose battle with government unions grabbed headlines throughout 2011.
Perhaps Snyder’s post-partisan image was what kept him off the national press’s radar for so long: he ran as a wonk who would use his business acumen to fix the state’s finances.
In his first budget, Snyder sought to close a $1.5 billion deficit while pushing—successfully, as it turned out—to get rid of the hated Michigan Business Tax.
The MBT didn’t just tax businesses’ profits, as most corporate taxes do; it taxed their revenues as well, meaning that firms had to pay even when they weren’t making money.
Politicians and policy experts in Michigan had long acknowledged that the MBT was one of the nation’s worst corporate taxes and that it drove away business. But it brought the state $1.7 billion in yearly revenue that no previous governor had wanted to forgo.
Snyder’s tax-reform plan was audacious. To make up for the lost MBT revenues, he proposed a flat corporate levy; jettisoning $400 million in targeted corporate tax credits, which had tried to keep particular companies in the state; and (most controversially) taxing the pensions of all Michigan residents.
Michigan, Snyder observed, was one of only three states that exempted pensions from income tax. The anomaly had originated in the mid-sixties, when state pols and public-sector unions reached a deal to exclude government pensions from taxes and public anger over the favoritism led to a broadened exemption.
Snyder’s call to tax pensions understandably upset retirees and government-worker groups, who threatened to try to recall the governor. But he persisted, and the recall idea fizzled.
The Michigan legislature eventually agreed with him and reshaped the state’s tax code. The new arrangement moved Michigan’s corporate levy from next-to-worst in the Tax Foundation’s national rankings to 18th best. “The Wicked Witch is done,” Snyder said.
Nor was that the end of Snyder’s reform drive. Last year, he lowered Michigan’s personal income-tax rate. And now he’s seeking to eliminate the state’s so-called personal property tax, which is actually an outdated tax on business equipment. Snyder’s changes are “unshackling the state from its obsolete economic past and positioning it for new prosperity,” noted the Detroit News.
In Kansas, meanwhile, Governor Sam Brownback is pushing to extend a tax-reform program. Brownback roared into office in 2011 proposing to lower income-tax rates and to regain the lost revenue by capping some popular tax expenditures, like the mortgage-interest deduction.
Republicans in the state legislature, balking at ending the popular items, passed a tax-cut package without them, lowering the state’s income-tax rate from 6.45 percent to 4.9 percent.
“The governor said early on… ‘Go bold.’ And we did,” said Mike O’Neal, Speaker of the Kansas House of Representatives. Brownback paid for the tax cut in part by keeping state spending flat and by using increased revenues from a modest upturn in the state economy. He’s now hoping to end enough tax-code deductions and loopholes to save Kansas more than $1 billion in revenue.
States are laboratories of democracy, in Justice Louis Brandeis’s famous formulation, and the very different experiments that their Republican and Democratic governors conduct over the next few years—especially on issues that go to the heart of economic competitiveness—will be eye-opening.
In the months since President Obama’s reelection, it’s becoming clear that the Republican governors plan to lead in ways consistent with the reform agendas that got them elected. How they fare may steer the Republican Party’s course more decisively than any soul-searching in Washington does.
Leave a Reply