Responsible state fiscal policy requires more than just balancing the current year’s budget. It must also include ensuring that the budget is on a sustainable path. Otherwise, policymakers cannot have the lasting impact they hope for. This risk is especially high in the aftermath of the COVID-19 pandemic. Record budget surpluses, driven largely by federal pandemic aid, empowered states to adopt historically large tax cuts and spending increases from 2021 to 2023.    

        State leaders must be able to assess whether their decisions will be affordable over the long term or will jeopardize their ability to solve state problems or even sustain programs and services in the future. Unfortunately, the nature of state budget processes discourages such long-term thinking. State policymakers devote much of their time to developing, enacting, and implementing annual or biennial budgets, a prime opportunity to achieve immediate policy goals. 

        One key strategy for changing this short-term focus is for states to use long-term budget assessments and budget stress tests to regularly measure risks, anticipate potential shortfalls, and identify ways to address impending challenges. Long-term budget assessments project revenue and spending several years into the future, and stress tests estimate the size of temporary budget shortfalls that would result from recessions or other economic events and gauge whether states are prepared for these events.

Internet: <https://www.pewtrusts.org> (adapted).

        Iowa, a small midwestern state, finds itself in the national economic spotlight. For conservative commentators, Iowa has emerged as America’s tax-cutting champion, a paragon of fiscal responsibility. To critics it looks more like an example of economic recklessness. 

        Either way, Iowa is playing an outsized role in a bigger debate about how American states ought to manage their revenues and spending. Until a few years ago it had one of the highest income-tax rates in America. By 2026 it will be down to a flat tax of 3.9%. Iowa is far from alone. Some 25 states have cut individual income taxes over the past years. A handful, including Georgia and Idaho, are shifting to a flat tax. And a few others want to eliminate their income taxes altogether. 

        Virtually all states, regardless of political make-up, have lowered their citizens’ tax bills since 2021. Overall, this has been a rough decline in states’ tax revenues during this time, the steepest such reduction in at least four decades. But the most aggressive moves have been cuts to income taxes, and Iowa has been at the forefront of these efforts.

The Economist. A tax-cutting wave is sweeping over America’s states. Internet: . (adapted). 

        Iowa, a small midwestern state, finds itself in the national economic spotlight. For conservative commentators, Iowa has emerged as America’s tax-cutting champion, a paragon of fiscal responsibility. To critics it looks more like an example of economic recklessness. 

        Either way, Iowa is playing an outsized role in a bigger debate about how American states ought to manage their revenues and spending. Until a few years ago it had one of the highest income-tax rates in America. By 2026 it will be down to a flat tax of 3.9%. Iowa is far from alone. Some 25 states have cut individual income taxes over the past years. A handful, including Georgia and Idaho, are shifting to a flat tax. And a few others want to eliminate their income taxes altogether. 

        Virtually all states, regardless of political make-up, have lowered their citizens’ tax bills since 2021. Overall, this has been a rough decline in states’ tax revenues during this time, the steepest such reduction in at least four decades. But the most aggressive moves have been cuts to income taxes, and Iowa has been at the forefront of these efforts.

The Economist. A tax-cutting wave is sweeping over America’s states. Internet: . (adapted).