Wednesday, May 20, 2009

States: It's Taxes, Taxes and More Taxes


Facing mounting budget deficits and seeing few areas left to cut spending, states increasingly are turning to the only option they have left: raising taxes.

Though public officials are loath to do this, particularly during a recession, many governors are increasing personal income taxes, raising corporate income taxes, hiking cigarette and gas taxes, or broadening sales taxes.

Already, 16 states have taken this unpopular step this fiscal year, and another 17 have proposed tax hikes for the coming year, according to the Center on Budget and Policy Priorities, a policy group. In many cases, they are making small increases in specific taxes, rather than imposing a broad rate hike.

"The question isn't whether to raise taxes, it's which taxes to raise," said Linda Bilmes, professor of public finance at Harvard's Kennedy School of Government.

Wealthier residents in Hawaii are now paying higher personal income taxes. The state increased the tax rate to 11% for single filers earning more than $200,000 and couples making more than $400,000, while also raising levies on hotel accommodations and real estate purchases.

Smokers in Rhode Island, meanwhile, now pay the highest state tobacco taxes in the nation, forking over an additional $1 for a total of $3.46 in state levies per pack.

California, where voters Tuesday defeated several budget measures, has already increased sales taxes by one percentage point and state income taxes by a quarter point. Now, Gov. Arnold Schwarzenegger says he has to make even deeper cuts to the state budget to close a $21.3 billion shortfall.

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