State Deficits Growing, Taxes & Fees on the Rise

The National Governors Association’s April 2009 State Economic Review is out, and the outlook is not good on taxes:

As states continue to feel repercussions from the national recession, the likelihood that they will raise taxes grows. Over the last several years, more states have enacted overall tax and fee decreases than increases. According to NGA’s and NASBO’s most recent Fiscal Survey of States, 24 states enacted net tax and fee decreases in fiscal year (FY) 2007 while 15 states adopted net increases; 24 adopted decreases in FY 2008 while 18 adopted increases; and 20 states enacted decreases in FY 2009 while 14 adopted increases.

However, this trend is almost certain to reverse in FY 2010. For one thing, most states enacted their FY 2009 budgets in spring 2008, before the financial sector meltdown in fall 2008. In fact, several states are considering tax and fee increases, along with budget cuts and the use of rainy day funds, to solve budget shortfalls.

For the most part, states right now are avoiding broad-based tax increases and are alternatively proposing increases in cigarette and alcohol taxes, along with increasing fees in areas such as parks and recreation and vehicle licenses. However, budget gaps in a handful of states have grown so wide that once-reluctant governors and legislatures are now considering increasing broad-based taxes. At least 10 states currently have proposals to increase either personal income or sales taxes, and that number is likely to rise sharply over the next several years. offers an overview of current state tax increase proposals:

Even with federal stimulus dollars flowing into the states, many Americans will feel the pinch as states look to take a bigger cut from everyday activities to help balance budgets through 2010 that are in the red by more than $200 billion, new figures show.

If you rent a car in Colorado, download a cell phone ring tone in Kentucky, earn more than a half-million dollars in New York or buy a car or laptop in California, you’ll already have to dig deeper in your wallet because those states have hiked taxes or fees to balance their ledgers.

At least a dozen states have either raised the sales or income tax or are seriously considering it. Hundreds of new or higher fees for a variety of services also are pending in nearly half of all states, which are scrambling for more revenue to offset plunging tax receipts. “We’re seeing a blizzard of fees to help states balance their budgets,” said Sujit CanagaRetna, senior fiscal analyst for the Southern Legislative Conference of the Council of State Governments.

After already cutting $40 billion, states expect to have to slice another $62 billion to make their current budgets balance, the National Conference of State Legislatures said in its latest survey of states’ fiscal health, released April 23. Four months ago, NCSL figured states would have to close shortfalls of $85 billion for fiscal 2010 budgets. Now that number has ballooned to $121 billion. Similarly, the National Governors Association has estimated budget gaps could top $230 billion through 2010.

Read the whole thing for a list of the most commonly-targeted taxes and fees, not to mention a handy mapping tool offering customized overlays by type of tax.

Luckily, some policymakers are looking to cut spending as a first resort, as opposed to tax hikes.