A revolution is brewing in California, sparked by an annual state budget that is a stunning $38 billion out of balance. States like Connecticut, New Jersey, New York and Oregon face similar, though lesser, fiscal crises. What has happened to state budgets in these places? And who is to blame?

Democratic Party officials have tried hard to "nationalize" this problem, and have received assistance in this regard from much of the national media. If you listen to the Democrats' line of argument, today's state fiscal crisis was caused by coldhearted Republicans who choose tax cuts over "adequate" funding of "essential" state programs. Without prospect of federal help (thanks to President Bush's tax cutting parsimony), state taxes must now be increased to support "necessary" services. And if taxes are not increased fast enough, terrible cuts in spending must also be contemplated. This is not only cruel to the "vulnerable" but also puts the entire economy at risk. The negative drag from state spending cuts may hurl us into another recession, the New York Times argued recently.

This may sound plausible enough. But almost nothing about it is true.

The California story is actually quite straightforward. During the 1990s boom years, Gov. Gray Davis found his state revenues surging along with the stock market. He responded by jacking up government spending almost 40 percent. When the stock market and economy softened, revenues were no longer sufficient to maintain that sharply higher level of spending. The gigantic fiscal crisis that ensued created a media frenzy and a historic vote on recalling the governor.

As for the idea that state spending is being slashed--it's true that legislators in many places are having to tighten their belts--but it is only huge planned increases that are being cut. Even after all of this year's "cuts," state government spending will be 2 percent higher in the current fiscal year than it was in the previous year. If total spending is still rising, how can Democratic National Committee chairman Terry McAuliffe and the New York Times claim this is going to drag down our economy? Could politics be involved?

Budget Busters

The 10 states with the worst deficits per capita

State	Deficit per capita	2000 vote
California	$985	D
Connecticut	$679	D
New Jersey	$664	D
New York	$626	D
Oregon	$615	D
Massachusetts	$568	D
Minnesota	$542	D
Wisconsin	$436	D
Maine	$400	D
Delaware	$372	D
SOURCE: Sean Gupta, AEI

To help uncover whether today's state budget crisis is more attributable to "irresponsible Republican tax cuts" or "irresponsible Democratic spending," I recently analyzed individual state budgets in light of those states' political complexion. I began by dividing the states into those that voted for President Bush, which I labeled as predominantly Republican, and those that voted for Al Gore, which I designated Democratic.

Separated out that way, the state budget data tell a striking story. Though the total population of Bush and Gore states are almost identical, the states that voted Democratic account for fully 70 percent of today's state deficits; Republican states ring up only 30 percent of the total. And of 10 ten states with the largest per capita budget deficits (see nearby table), every single one voted Democratic in the last presidential election. (Alaska, which finances its government from oil revenues rather than taxes on its citizens, was excluded from my analysis.)

What does this suggest? It suggests that Republican economic policies, particularly the taste for tax cuts, cannot fairly be blamed for putting states in economic peril. It suggests that Democratic economic policies, particularly the tendency to increase spending, are the major force behind today's imbalances.

The more one studies the state data, the clearer this becomes. Consider that in the top 10 deficit states (again: all Democratic) tax revenues increased at the dramatic rate of about 5 percent a year over the last decade. With all that revenue growth, why did those states build up deficits? Because spending was allowed to grow even faster.

In contrast, in the 10 states that are most fiscally sound today, tax revenues grew only 1.5 percent a year over the previous decade. How could such "anemic" tax flows yield economic health? Through careful spending control.

The differences between the healthy states and the sick states are striking, and they belie all the New York Times-style truisms about what lies behind state fiscal health. Consider that the average tax revenue per person in today's sickest ten states was $2,445 in the last data available--compared to only $1,923 per person in the 10 healthiest states. This blasts out of the water the idea that states get sick because they have been starved of revenue; indeed it shows the opposite.

One could hardly attribute today's state deficit problems to "reckless tax cutting." If anything has been reckless, it is spending. Democratic elected officials in particular seem to have shown too little regard for taxpayers' money. Taxes have increased, but spending has increased more, and citizens are waking up to find themselves heavily burdened and in debt. The result is another taxpayer revolt in California, and perhaps in other staunchly Democratic states. Whatever their rhetoric, the record shows that Democrats are still the party of spending.

Republicans are not invulnerable to a spending backlash, though. During the last national taxpayer revolt in the early 1980s, Ronald Reagan increased defense spending but cut nondefense spending sharply. President Bush, on the other hand, has increased spending on just about everything. Three of the five biggest increases in federal spending in U.S. history occurred during Mr. Bush's first three years in office (the other two took place during World War II). This spending surge can't simply be written off to the war on terror. Spending in the Department of Education, for instance, is 60 percent higher than it was when Mr. Bush took office. And if the prescription drug plan favored by the president is enacted into law, Republicans will have made Gray Davis look parsimonious by comparison.

If the lesson from the states is that voters grow angry when governments spend far beyond their means, then federal officials should take notice. Politicians who spend with the same enthusiasm as Gray Davis may eventually experience the same treatment at the hands of taxpayers.

Kevin A. Hassett is director of economic policy studies at the American Enterprise Institute.