According to the Congressional Budget Office, the federal government posted a $293 billion deficit in the first fiscal quarter of 2013, setting the Obama administration up for a record fifth year of trillion-dollar deficits. As a result, the Treasury Department has already reached its legal borrowing limit, and unless Congress raises the limit again soon, economic chaos could ensue.
Meanwhile, down in Texas, legislators are facing a polar opposite problem: They have to figure out what to do with a $8.8 billion surplus. How did Texas manage to roll up that kind of financial cushion, especially considering that just two years earlier, the state faced a $27 billion deficit? Not by raising taxes or boosting spending. Texas made deep and difficult spending cuts to favorite government programs, including education. It didn't raise taxes, and it didn't chase the environmental movement's dream of a new energy economy.
Instead, Texas went about minimizing regulations and taxes in an effort to make it the most business-friendly state in the nation. It also unleashed the private sector on the state's natural resources, producing a natural gas and oil boom that is producing both jobs for Texans and royalty revenues for state government.
Texas is not the only state that has managed to turn the fiscal corner. Indiana had a $500 million surplus in 2012; Florida's was $400 million; Tennessee's was $580 million; Michigan's was $1 billion; Iowa's was $800 million; and Wisconsin finished the fiscal year $154.5 million in the black.
What do all these states have in common? They all have Republican governors that tackled budget deficits with restrained spending and no tax hikes. And except in Iowa, Republicans control both houses of the state legislature. This model is working.
Things are not going so well in neighboring Illinois, which has $5.9 billion in unpaid bills. Illinois has a Democratic governor and legislature, and it raised taxes to make up for years of overspending. Surprise, surprise -- it hasn't collected as much revenue as the experts had predicted the tax hike would raise.
A similar story is playing out in California, whose demography is nearly identical to that of Texas. But where Texas kept taxes low and developed its resources, Democratic Gov. Jerry Brown has raised taxes on everyone, restricted energy development and taxed energy consumption through a new cap-and-trade scheme. California now has the nation's third-highest unemployment rate, the nation's highest poverty rate, and it still faces a projected $1.9 billion deficit next year.
The federal system was designed to allow states the freedom to pursue their own policy paths. Moderate states can now look at the results of liberal Democratic rule in California and Illinois, compare them with conservative Republican rule in Texas and Indiana, and then decide which path they want to go down.
But Obamacare is threatening to destroy that federalism. States with surpluses should be free to debate how to manage those surpluses: tax cuts, infrastructure investments, higher education and even more health care spending should all be options.
But Obamacare is threatening to take away that choice. Thanks to existing federal mandates, Medicaid already is the most expensive item on most state budgets. If governors elect to implement Obama's Medicaid expansion, they will permanently lock themselves into decades of even higher Medicaid spending, eventually crowding out other priorities like law enforcement, infrastructure and education. They're lucky even to have a choice -- Obama tried simply to ram the increased spending down their throats, like it or not.
If they want to preserve their fiscal freedom, states must say no to Obama's Medicaid expansion.