Governors want to levy higher taxes next year on clothes, soft drinks, gasoline, auto licenses and other items that likely will hit low- and middle-income families struggling to make ends meet in a deepening recession the hardest.
Officials say they are required by law to balance budgets and that tax increases are necessary as state governments face sharply declining tax revenues, but fiscal analysts say raising these taxes during an economic downturn will only worsen local economies and prolong the recession.
One of the most sweeping revenue packages comes out of New York, where Democratic Gov. David A. Paterson wants to raise $4 billion with 137 new or increased taxes and fees in the budget, including an 18 percent so-called “anti-obesity tax” on non-diet soft drinks. Satellite TV, cigars and professional licensing fees also are targets.
“Middle-income families do not get wage increases during a recession, but neither should the states. Families have to cut back, and so should state government. They should cut spending,” said Chris Edwards, who tracks state budgets at the libertarian Cato Institute. “These states should have been retrenching after budget increases of 7 percent over the last two years, but they repeated the same mistakes they made in the late ‘90s, assuming the good times were going to last forever.”
In its annual report on the states’ fiscal conditions, the National Governors Association reported last week that “most states experienced poor fiscal conditions in 2008, with conditions for fiscal 2009 continuing to deteriorate and expected to continue to severely decline as the national recession deepens.”
“Virtually all states are now in recession or at risk, and states expect continued expenditure pressures from a variety of sources, including Medicaid, employee pensions and infrastructure,” the NGA report said.
But spending critics said that not enough attention was being paid by the national news media to the plight of taxpayers, whose incomes were being stretched even further by rising sales taxes and fees, and higher property taxes.
“Most reporters are covering the state budgets and thinking ‘Oh, the poor states,’ and no one is looking at this from the perspective of the taxpayers who are the ones whose wallets are going to be on the line,” said political strategist Trent Duffy.
While states are generally holding the line on income taxes, analysts said, many are pushing tax and fee increases on products, services, licenses and businesses that most people consider necessities. Among them:
cNew York’s Mr. Paterson also is proposing to end property-tax rebates and to raise state fees on motor-vehicle registration, auto insurance and state parks. He’s pushing for higher tuitions at state universities and proposes to extend the sales tax to clothing and shoes under $110. He wants to raise taxes on car rentals, beer and wine, and gasoline.
cIn Oregon, Democratic Gov. Theodore R. Kulongoski’s $15.8 billion budget is calling for higher taxes on hospitals, health insurers, cigarettes, gasoline, vehicle registrations and corporations. He wants to push the gas tax up by 2 cents to 26 cents a gallon and raise vehicle-registration fees from $27 a year to $81, which would raise more than $1 billion over the next two years.
Hospital officials said the tax would hit health care facilities across the state “at a time when Oregon’s hospitals are facing a severe downturn in their net operating revenue.”
cIn California, Gov. Arnold Schwarzenegger, a Republican who won election by promising not to raise taxes, is proposing a 1.5 percent increase in the sales tax, which is now set at 7.25 percent. He also wants to raise the motor-vehicle registration fee by $12. His critics say both taxes are regressive because they hit low- and middle-income taxpayers the hardest.
cGov. Butch Otter of Idaho, a Republican, is asking the Legislature to raise vehicle-registration fees, raise the 25-cents-per-gallon gas tax and broaden the sales tax to include rental cars.
c In Kansas, Gov. Kathleen Sebelius, a Democrat, and state legislative leaders are calling for a major cigarette-tax increase, between 50 cents and 75 cents a pack, to help finance health care programs. The proposals come in the wake of a report from budget analysts that said state tax revenues would fall by more than $211 million in fiscal 2009 and plunge even more in fiscal 2010.