When Tax Cuts Hit Texas

As a candidate, he promised big tax cuts and won a close election. As a chief executive, he made delivering on that pledge his first item of business. Lawmakers lined up to vote for his tax bills--but over time, those cuts reduced government revenues and threw the budget out of whack, undercutting essential programs like Medicaid.

That may sound like Tom Daschle's warning cry about what will happen to America if President Bush's tax cuts become law. But critics charge that it's also what happened to Texas after Governor Bush's tax cuts became law there. They say the nearly $3 billion-plus in tax reductions the Governor steered through the legislature in 1997 and 1999 have left the state facing a potential $700 million shortfall.

Bush and the legislature used rosy revenue projections to justify not only lower taxes but costly improvements in education and highways. Now, with the economy cooling, there may not be enough coming in to pay for some of these programs--and a bundle of unanticipated Medicaid costs, plus much needed programs such as affordable health care for teachers.

Because the Texas constitution mandates a balanced budget, running a deficit is out of the question. As a result, Rick Perry, Bush's Republican successor, has already suggested that some improvements to roads and higher education may be in jeopardy. In response, several Democratic lawmakers have begun to talk about a tax increase. But few of their colleagues want to go that route. (Read their lips: No new taxes.) So while they look for another way out of the mess, Republicans are arguing that the hubbub is merely a dirt devil whipped up by Bush's enemies in Washington. They point out that Texas will have nearly $1 billion in emergency funds on which to draw. And a spokesman in Bush's White House insists that "Texas is in a strong fiscal position."

That's an improvement from what Bush was saying last summer. When Al Gore predicted during the campaign that Bush's Texas tax cuts would wreak havoc in the state, Bush joked, "I hope I'm not here to deal with it." He's not--but the problem is dogging his heels just the same.