Thursday, May 20, 2010

States Raising Taxes to Fill Budget Deficits

Cross posted at Main St/

As we've been saying, the recession is taking a toll on state governments, most of whom have some serious budget deficits to cover. States have been closing down branch libraries, laying off employees, initiating furlough days; anything to save some money. The combination of decreased revenue and federal aid is putting most states in a terrible bind.

Some states are going for the last resort. They're actually raising taxes:

Wisconsin, like many states, turned mainly to wealthier residents and businesses. The big-ticket item was a new top personal income tax bracket, which Gov. Jim Doyle said "wasn't even that hard a call."

"We were in a terrible spot, and the alternative was cut schools, universities and do long-term damage," Doyle said. "So if you're making over $300,000 in this economy, you can help out a little bit."


In New York, the eye-popping change was a new top rate expected to generate $3.9 billion in income taxes in 2010. Among dozens of changes, the state made limousine rides subject to a sales tax ($25.6 million) and expanded bottle deposits to water and flavored water ($115 million).

A 1-cent sales tax bump in California could bring in $4.5 billion.

This week, Arizona's Governor Jan Brewer signed a bill increasing the sales tax by one cent, in order to help ward off cuts to education and other services. She even did this in an election year:

Here, the sales tax increase, a temporary rise to 6.6 cents per dollar for the next three years, is expected to raise nearly $1 billion in the first year, two-thirds of which will go to education. It won approval by 64 percent of voters, though only a third of eligible voters turned out.

It does nothing to erase cuts already made, including the loss of all-day kindergarten, health care reductions for the poor, and the closing of several state parks and highway rest stops, precipitated by a 30 percent decline in revenue.

But Ms. Brewer, and a coalition of politically odd bedfellows, including the state teachers’ union, business groups and office holders from both major parties, sold it as a necessary evil to avoid teacher layoffs and cuts to public safety.

In Oklahoma the state Senate is looking at suspending a number of income tax credits that have been given to certain industries:

The bill approved by the Senate General Conference Committee on Appropriations targets 31 separate tax credits, including certain job creating investments that cost the state an estimated $14.2 million annually.

Three separate tax credits for aerospace employers total more than $3.5 million. Other tax credits were for the purchase and production of coal, investments in agricultural processing facilities and the construction of energy-efficient homes.

Rather than eliminate the tax credits entirely, the bill proposes a moratorium from July 2010 through June 2012.

That taxes are being raised in an election year shows how dire the economic situation really is.

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