Reveling in rebates.

• Author: Rafool, Mandy
• Position: Tax rebates by state governments

Lawmakers around the country are struggling with an unaccustomed predicament - the best way to give money back.

What a difference a decade can make. Who would have dreamed 10 years ago that in 1998 the Dow Jones Industrial Average would be hovering around 9,000, interest rates would be falling and the federal budget deficit would be gone? And who would ever have guessed that the hottest debate in most state legislatures would be what to do with surplus revenues?

States have over $30 billion in reserves and revenues continue to exceed the wildest expectations. A booming stock market, low unemployment and more bonuses tied to strong corporate profits and stock prices mean more income and capital gains for states to tax.

Extra money to spend hardly seems like a typical government problem. Still, dividing up that money means making choices, choices that could make somebody mad. And that's the last thing lawmakers want to do in an election year. Forty-six states will hold legislative elections this November, and 36 states plus the Virgin Islands will elect governors. One surefire way to score points with most taxpayers is to return some of the bounty.

States have been cutting taxes for the past four years. Nearly every state cut taxes at least once in the last four years, and almost half have lowered taxes in each of the past four years. As revenues continue to outrun forecasts, states are encountering their highest year-end balances in 18 years. Given the fact that most states have already decreased taxes at some point and still have surplus revenues, lawmakers recently started looking at the idea of one-time-only tax rebates, thereby adding an interesting twist to the surplus debate.

WHY REBATES?

Why do lawmakers want to provide a one-shot refund when they have so many other options? Why not spend excess revenues on schools or roads - items that are perpetually underfunded? Why not set the money aside and save it for leaner times? Or why not lower taxes permanently? One reason: Some states have already done all that and still have money to spare. But the primary reason legislators have started leaning toward one-time-only refunds is simple - rebates are a fiscally conservative way to earn kudos. They give something tangible back to the taxpayer, who after all is the one who earned the money in the first place.

Not everyone agrees that rebates are the best way to go. Some residents would like to see surplus revenues used to boost state services. This includes Colorado House Majority Leader Norma Anderson who says, "Many of my constituents, even the conservative ones, have told me that good times are when you should catch up for what you didn't do in the bad times. This doesn't preclude rebates or tax cuts, but first we should take care of state needs."

In addition, every cause has its supporters who truly feel that their program deserves a slice of the pie and that sending a rebate check is nothing more than a waste of a postage stamp. To them, it makes more sense for the state to keep the money than to return a relatively insignificant amount to the taxpayer. Of course, this sentiment varies depending on the size of the potential rebate.

Then there are those who believe that excess revenues should be saved for a rainy day. Nearly every state has established some sort of "rainy day fund," and this could be a good time to replenish those funds. Many legislatures have done this, but they still have surplus to spare. Besides...