States Returning Budget Surpluses to Taxpayers

September 12, 2006

NPR’s “Morning Edition” today reports on one way state lawmakers are reacting to large and growing budget surpluses in recent years: returning them to taxpayers with tax reductions.

The story focuses specifically on the State of Arizona, which has emerged as a leader in the trend toward surplus-based tax reductions. According to state Senator Dean Martin, Arizona recently enacted the largest tax reduction—in nominal terms, that is—in state history, returning more than $1 billion to taxpayers over three years. From the piece:

[S]tate lawmakers began the year with a happy problem: what to do with a $1.1 billion surplus.

It took six months to work out the details but they eventually agreed to give it back.

They reduced income taxes by five percent a year over the next two years and cut property taxes over the next three.

All in all, the cuts amount to more than a billion dollars…

The story goes on to explain how Arizona is just one of more 20 states that used their budget surpluses this year to reduce income taxes. It also notes how a handful of other states have used budget surpluses to reduce property taxes instead.

Listen to the full story here. The question of how to dispose of budget surpluses is an age-old and recurring public finance theme. For some ideas at the federal level, see here.

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