Despite Gov. Jindal’s spending cut in late December, Jan Moller reports in the Times Picayune on a possible “mid-year budget deficit that could be as high as $400 million.” According to the state Department of Revenue, lower income and sales tax revenues are to blame. In February, the state collected $209 million but paid $230 million in tax refunds.
As Moller reports, Louisiana law allows Jindal to “cut 3 percent from each budget unit without legislative approval.” Even if the state is collecting insufficient income and sales tax revenues, Jindal should engage in further cuts and avoid tax increases.
Advocates of tax increases argue that further cuts threaten essential state services (i.e. health care and education) and damage the economy by reducing demand. But Chris Edwards of the Cato Institute correctly points out that cuts in state spending can force a restructuring of programs and finances that would be otherwise impossible. Edwards notes: “Just as recessions weed out the least successful businesses in the economy, policy makers should use the recession as an opportunity to weed out their least successful programs.”
If Governor Jindal judiciously cuts spending it can have a positive impact on the state’s future economy. Louisiana should take advantage of this situation and phase out unsuccessful and failing state programs. This will lead to a more sustainable budget and the efficient use of taxpayer money.