New York May Tax Clothing Sales to Narrow Budget Gap

Only a few days after New York raised the state tax rates on cigarettes, Governor David Paterson is now considering a 4% sales tax on clothing purchases under $110. The tax was put into place for 3 years once, but was repealed in 2006. Officials say the tax could raise $660 million annually.

“Taxes on clothes have been brought back to us” by legislators, Paterson said in an interview on New York City radio station WOR today. “It’s in the discussion phase.”

Lawmakers face a June 28 deadline set by Paterson for agreement on a budget covering the year that began April 1. If no agreement is in place by then, Paterson has said he will submit his own budget plan in an emergency spending bill, which lawmakers would have to approve, or shut down government.

Paterson’s $135.2 billion budget proposed earlier this year includes cuts in aid to school districts and a tax on sweetened beverages that lawmakers oppose. Additional taxes should close 10 percent to 13 percent of the deficit, or $920 million to $1.2 billion, Paterson said in an interview on radio station WGY in Albany.

Taxing clothing sales or finding revenue by other means is needed because lawmakers are balking at Paterson’s proposals to raise $710 million by allowing wine sales in grocery stores and imposing a new levy equaling 1 cent per ounce on sweetened beverages, the governor said.

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Facing Budget Gaps, U.S. States Shuffle Tax Codes

From Reuters.com:

Caught with near-chronic budget shortfalls, U.S. states are scrambling to change their tax codes and bring in more revenues, the Tax Foundation said on Wednesday.

The foundation has compiled an annual index on 37 categories of states' taxing and spending since 1937. This is the first time that it has had to update the report in the middle of the year.

"Many states have started the new fiscal year with tax codes that are vastly different compared to just a few months ago," Tax Foundation President Scott Hodge said in a statement.

Hawaii, for example, has recently increased its top marginal tax rate to 11 percent, making it tied for first in the country with Oregon. New Jersey, New York, Wisconsin and Delaware also increased individual income taxes for high earners in recent months.

"It's a bit of a troubling trend to see," Mark Robyn, the foundation's staff economist, said on a conference call with reporters. "One of the problems we see with taxing high income individuals is that high-income individuals tend to have volatile incomes."

Their business and capital gains income fluctuate with the economy "even more than the average person's income," he said, adding they shy away from starting businesses in states with higher income tax rates.

On the other hand, Maine, North Dakota and Vermont have cut income taxes since January, the foundation found.

Ten states have pumped up their taxes on cigarettes, while four have increased sales taxes.

California raised its sales tax to 8.25 percent this year, the foundation said. The state, which finalized its budget this week after a drawn-out battle in Sacramento, also allows local governments to add to the sales tax.

In the Los Angeles area, five communities have sales taxes of 10 percent, according to the group.

California has also moved up one spot to No. 2 in the rankings of states with the highest gasoline taxes, as it has raised its levy to 39.9 cents per gallon from 35.3 cents. New York remains the state with the highest gas tax, with an increase to 42.5 cents per gallon from 41.3 cents in January.

According to the National Governors Association, U.S. states will likely face deficits totaling at least $200 billion over the next three years, and most are required to eliminate any gaps at the end of their fiscal years.