- The Washington Times - Thursday, May 2, 2002

COLUMBUS, Ohio (AP) A growing number of states are balking at the government's economic-stimulus plan, saying it will cost them billions of dollars in business taxes that they desperately need.
Virginia, where the plan would cost the state $310 million over three years, has dropped out. So have Maryland, Massachusetts and Nebraska, as well as the District of Columbia, and at least five other states are considering such a move.
Virginia Secretary of Finance John Bennett said the decision was a choice of "competing evils," but added: "I don't think we had much choice."
President Bush signed the package into law in March, saying he hoped it would spur business investment and create jobs. It extends regular 26-week unemployment benefits by 13 weeks and provides businesses with a variety of tax breaks.
The nonpartisan Congressional Research Service and state officials estimated the package will cost states $14.7 billion over the next three years. In New York City, budget officials said it will lower income-tax collections by nearly $300 million over the next two years.
Critics, including the National Governors Association, said the package hurts states that are struggling with lingering effects from the recession, falling tax revenue and higher health care costs.
The governors association suggested the stimulus plan will force states to slash health benefits and put off education and highway projects.
The U.S. Chamber of Commerce, a business group, dismissed the worries as political posturing.
"We have very few states that can't afford to provide basic public goods," said Martin Regalia, the chamber's vice president for economic and tax policy. "The problem is they can't afford to do all their pet pork and their basic goods. Everybody likes to spend. Nobody likes to cut."
Critics single out a provision designed to boost business investment in new equipment through a depreciation tax break. Under the law, the business can deduct 30 percent immediately followed by 20 percent on the remaining balance on certain purchases through Sept. 11, 2004.
States say the write-offs will cost them hundreds of millions.
In Ohio, lawmakers facing a potential $1.2 billion deficit are thinking about dropping out of the plan to save $175 million next year.
"This is money that belonged to the state of Ohio," said Senate President Richard Finan, a Republican. "We make those decisions, or we should be making those decisions, not the federal government."
The other states considering dropping out are Connecticut, Oregon, Rhode Island and Wisconsin.
Dropping out means a state disconnects its tax code from the federal code. Before the recent defections, 28 states had such a link.
Disconnecting from the federal code allows states to avoid the upfront revenue loss because the federal law authorizing the stimulus package wouldn't apply to them.
Twenty states already were disconnected from the federal tax code before the stimulus package was approved. California has its own schedule for adopting a similar tax break, and Washington doesn't have a business tax that could provide such a break.
Dropping out could create a paperwork nightmare, because it will force companies to carry two sets of accounting books one for the federal code and one for the state.

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