Out of Control Policy Blog

States Sharply Raising Taxes to Meet Budget Shortfalls

With at least 75% of the states facing budget shortfalls for the coming budget cycle, states are planning large tax hikes to cover for decreased revenues. New taxes on everything from iPod music to taxis to just fun in general are scheduled to come into effect in the midst of an economic downturn where even the wealthiest are looking for ways to limit spending.

Budget shortfalls range from near $30 billion in California to $83 million in Vermont. But while American families have to make budget cuts in the face of economic hardship, states are just raising taxes instead of shedding expenses.

To be fair, states are making some budget cuts along with taxes, but New York state's 137 new taxes, including an 18 percent "anti-obesity tax" on non-diet pop (that's soda or soft drinks for those outside the Midwest) are ways to avoid not cutting the necessary ways. What will states tax next... smiles?

While New York Governor Paterson does have a $15.4 billion budget gap to close, his proposed $121 billion represents a 1 percent increase in spending from the 2008-09 budget. This increase is small, but it is still an increase in spending. The governor did cut $698 million from school aid, $3.5 billion in payments to hospitals and nursing homes, and 521 workers from the state payrolls--but the budget still went up by over $1 billion.

In an August 14, 2008 column with the New York Daily News, governor Paterson acknowledged himself that "Suggesting that we seek new revenues by imposing new taxes or quick one-shot gimmicks, or finding ways to collect revenues that are likely to be tied up in years of litigation, is not a solution to the urgent challenge we face." He understood then that raising taxes is not the answer, but now he and other executives in states nationwide are struggling to find the political will to do what is necessary.

In cases where states need to meet deficits and balance their budgets (by law in most places) governors and legislatures should be making deep cuts and tossing aside programs that aren't within the core function of government--not raising taxes even more. Privatizing state institutions or their management is a good long-term answer, but public-private partnerships do take time to come together. Short-term the state must be willing to outsource more operations to cheaper, more efficient contractors, cut programs, do what is necessary (though painful) to find the 12 percent or so in the current budget that should not be spent.

Like every family in America, States should decrease their spending, not take more from those already working hard to manage their finances responsibly.

Anthony Randazzo is Director of Economic Research


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