October 31, 2014
Next week, voters will decide on a number of state tax and spending issues through ballot measures, determine the outcome of 36 gubernatorial races, elect state legislators and decide which political party controls the United States Senate. Some analysts have indicated that many of the 16 tax-related ballot initiatives may be more about compelling voters to show-up at the polls than about making substantial changes to tax policies. However, there are some notable tax changes on ballots in states like Georgia, Illinois, Massachusetts, Nevada, and Tennessee. In addition to taxes, voters will decide on key spending initiatives related to infrastructure (California, Louisiana and Hawaii) and education (New York and Rhode Island). More detail on state ballot measures can be found in our recent issue brief, Ballot Measures in the Upcoming General Election.
Of course, the backdrop to ballot proposals, gubernatorial and Congressional elections is the underlying health of the economy and job market. For some incumbent governors seeking reelection, there’s some good economic news. Forty-nine states have added jobs between August 2013 and August 2014, and the unemployment rate has dropped in 45 states as well as the District of Columbia. Indeed the economy and labor market are improving; this week’s third quarter gross domestic product (GDP) numbers showed the national economy grew at an annual rate of 3.5 percent. And over the last six months, the U.S. economy has displayed its best performance since 2003, better than any six months during the boom years from 2005 to 2007, despite a tough start in the first three months the year. State budgets are also improving with executive budgets in 42 states calling for higher spending in fiscal 2015 compared to fiscal 2014.
Despite improvements in the national economy, wages haven’t increased as rapidly as stock prices since the economic recovery has solidified, making some elections involving incumbents competitive. And wages haven’t kept pace with inflation either, leaving many households feeling worse off than they were prior to the recession. Over the past year, real wages have fallen in 26 states. The issue of wages is also highlighted by its prevalence on state ballot measures this year. Voters in five states, both Republican and Democrat strongholds, (Alaska, Arkansas, Illinois, Nebraska and South Dakota) will decide whether to raise the minimum wage.
The trend of slow wage growth may place pressure on state budgets driven by personal income taxes and even those states heavily reliant on sales taxes. Caution regarding state spending may also persist after some states experienced unexpected revenue shortfalls this spring tied to the federal fiscal cliff. Next week’s elections are sure to bring notable changes to state tax and spending patterns and Congressional fiscal policies. While patterns are sometimes difficult to ascertain, the results of gubernatorial races and the ballot measures will give us some indication as to how much voters want changes or how they are reacting to recent fiscal measures in various states.