I'll take the "less wisely" side. I know, I know, it's hard to think of how that could be, but state government never fail to break records in this area.

On a related note Instapundit notes a WAPO article that estimates of the Federal budget deficit may be reduced by $100BN. Not a surprise to those who understand that most of the deficit was caused by the slowing economy, not tax cuts.

Ohio and Virginia (two Republican states) are raising taxes now, apparently because the legislators are afraid of being wise.

Do you guys know what "smaller than expected tax refunds mean"? Is a silly way to say that your investment income (from gains, interest and dividends) was much bigger than expected so the overwitholding on your wages ended up funding most of the additional tax from wealth gains. I wonder if there are Dems that will bite and begin spinning this as "Oh you see, the typical person got no refund". The reality is that most of the last minute shift in taxes owed (more of it) vs taxes refunded (less of it) was borne by people with large investment gains.

"NOPE!"(from the token Oregonian here)

oops, operator error: here's the raw link

http://www.cnn.com/2004/US/West/05/03/prison.tv.ap/index.html

The states can't print money, so they are forced to balance their spending, borrowing and taxation. Of course economic activity has picked up due to the large tax cuts and refi activity. The Federal deficit increases has allowed the states to improve their income statemens.

I would not put too much trust in any projections on the Federal budget deficit. Inflation is up, the markets will stay flat at best this year. Rates will increase, whether the Fed goes along or not, so borrowing costs will increase.

Robert --

Economic activity has now broadened well beyond consumer spending driven by consumer spending (the greatest beneficiaries of tax cuts and refi) and include business spending and net exports. Consumer spending can be counted on to be solid on account of increasing income (wages and proprietors). Net exports are beginning to grow driven by lower USD and broadening global growth. And tax cuts won't go away soon (even if they don't become permanent). So the economy will continue to grow fairly nicely even if facing moderate headwinds -- energy prices and rising interest rates. In fact, a bit of inflation (2% p.a., with peaks of 2.5%) can not now be such a bad thing after having spent 2 years hearing the Cassandras of deflation declare global growth finished. Markets will re-adjust to normal business cycle conditions -- towards which we are heading -- and will decide whether lower economic risks/higher profits more than offset higher real rates.

I hope you are right MG, but I am stil not convinced. Lower USD will bring higher inflation which will offset any export-driven income. As rates rise, the bond and derivatives bubbles will deflate. I don't think the pain is over by a long run.

Except that the lower dollar is a debubble (or whatever the opposite of a bubble is). No one in their right mind would bet on the future of Europe over that of America, yet it's currency has gone up against ours. Money valuations are basically political emotions and hatred of America is confusing people terribly right now.

Yes, it is a de-bubble, wrought by the bond bubble and the twin deficits. The system has to balance out somehow. It isn't a political reaction, the Europeans offer higher interest rates than we do. Noone wants the US economy to fail, we'll drag the world down with us.

Robert:

and they're crushing their already feeble economies in the process. The Euro is a short term winner and a long term loser.

It is a choose your poison scenario. We choose low rates and inflation, which is better for a nation of debtors than deflation. Remember the 70's? As long as you have marketable skills that will inflate along with the CPI, you'll do well. Anyone on fixed incomes will be trashed, though. Don't plan on an early retirement.

rather, fairly standard rates given that there is no inflation.