There's some bad news for Obama voters who think their guy swept the table in November and is now entitled to have things his way for the next four years. There were other elections held in states across the nation and most of them didn't go so well for the Big Government tax-and-spend crowd.
Voters have installed Republicans for governor and both legislative houses in 25 states while Democrats maintain similar control in 13 states. Many seemed poised to seize the agenda on tax reform, regulatory cutbacks, unions, pensions and health care since Washington is stuck in place.
States have reasons to be more fiscally sound than the federal government. Almost all of them must produce balanced budgets, at least nominally. They're unable to create more money, so they can't inflate their way past excessive spending. Moreover, productive citizens can and do leave states with high tax burdens and lagging economies.
You can see the difference between federal and state governments in the current debate over health care. The Feds behave as if cost is no object as they move to massively expand Medicaid and bribe the states to join in. In fact, they've offered to cover 85 percent of the cost if the states will agree to provide full insurance coverage for people under 133 percent of the federal poverty level.
Arizona, like many states, is apprehensive about taking the plunge especially since the feds may be unable to keep up their commitment forever. They tried to negotiate a lower eligibility level for which they could still receive the full federal match but were firmly rejected. Arizona may join other states in turning down the match, not because they don't care about their poor, but because there are better ways to make health care available at less expense.
For the Obama administration, government employee unions are a critical political support group to be pampered at all costs. The Feds have wasted hundreds of billions on "stimulus" spending that ended up going to unions. They maintained the Davis – Bacon Act that inflates the cost of infrastructure projects and they have supported unions in their efforts to eliminate secret ballots in union elections.
It works differently in the states. Many states have come to realize that they can no longer afford the inflated compensation and benefits that unions were able to win when economic conditions were better. Outsized government pension benefits alone are seriously threatening the solvency of many state and local governments.
Out of economic necessity, Wisconsin and now Michigan have moved to pass labor law reforms, in spite of spirited union opposition. Several other states are moving to curtail the dominance of unions, motivated in part by new confirmation that states with a strong union presence actually experience weaker growth of good jobs.
Several states are looking seriously at the broad-based tax reform that has eluded Washington, such as lowering tax rates while broadening the base or eliminating some taxes altogether. According to the American Legislative Exchange Council, the 10 states with the most business friendly tax climates saw 61 percent growth in state GDP over the past decade compared to 42 percent for other states. They gained 6.1 percent in private sector jobs versus a decline of 2.8 percent in the rest of the nation and saw significant in-migration of citizens from high tax states.
North Carolina was one of several states to elect a governor and legislature eager to cut taxes, institute pro-growth regulatory reforms and make their state more attractive to employers and investors.
Of course not all states are on board and here's where it gets interesting. California is the poster child of states where lawmaking is openly directed by unions, where taxing, spending and over-regulating have led to a decline in every index of economic health. Debt is piling up and public institutions are in steep decline. Yet voters actually responded by passing yet another $7 billion tax hike this November and giving Democrats a veto proof majority in the Legislature so that they can raise taxes at will.
The Californias and North Carolinas of the world have chosen dramatically different paths and we'll get to see which one turns out best. I can't wait. Meanwhile, states are leading the way while Washington dithers.