In case anyone was worried that there has been a shortage of bad ideas lately (not likely), the Burlington Times ran an editorial a few weeks ago calling on state leaders to jump on the stimulus bandwagon by doing state level rebates or just cutting taxes outright. There are so many things wrong with the paper's analysis that it is hard to know where to begin. Let's start with the obvious.
A glance at our state constitution (the hyperlink is for the Times' folks, not the rest of us who have read it) clearly states that, unlike the federal government, North Carolina state government cannot play the deficit spending game. We are required to balance our budget every year. How do they think the federal government is paying for its stimulus package? By borrowing the money that's how!
The Times' piece implies that we have some money just sitting around that we can rebate to folks. State revenues are running a whopping 1.25% ahead of projections through the first seven months of the year and the growth rate is slowing down each month. Moreover, the state won't know how well it predicted the more volatile revenues such as the non-withholdings portion of state income tax until later in the year. According to the Center on Budget and Policy Priorities, half of the states are already facing budget shortfalls. That could be the case in North Carolina within the next several months as well, and the last thing we need to do is act like we're immune to revenue shortfalls.
There is absolutely no evidence that a state-level rebate would do anything to jump start our economy. Even if the state ended up with a $200 million surplus at the end of the fiscal year (don't bet on it), that would allow the state to provide rebates of only $22 per person. These days that's not enough enough to fill a gas tank unless you drive a Vespa.
There are countless better ways to use such a surplus (if in fact it's there at the end of the year). The most obvious idea is to shore-up the state's reserves. Right now we have around $800 million in the state's rainy day fund. That's about enough to get us through one big hurricane (we spent $800 million on hurricane Floyd recovery), much less a natural disaster plus a real downturn in revenues.
This is not the time for ad-hoc, half-baked tax proposals. Thankfully, it doesn't appear that the Times' proposal is catching on. Let's hope it stays that way.