Weekly Wrap: GOP Govs Support Tax Hikes as Budget Fix

By: - July 31, 2009 12:00 am

In a year in which several Republican governors have reluctantly accepted tax increases as a solution to balance budgets, Connecticut Gov. M. Jodi Rell has been one of the holdouts.

“My budget for the next fiscal year is actually lower than our budget this fiscal year,” Rell said in releasing her initial spending plan Feb. 4. “I am proud of that – and I am also proud of the fact that my budget contains NO tax increases for the next two fiscal years. None. People cannot afford their taxes now. We should not add to their burdens.”

Rell flip-flopped Wednesday (July 29), saying she would release on Thursday (July 30) a new budget plan that would include million in tax hikes on tobacco products, alcohol and corporate profits.

The plan is the governor’s latest attempt to resolve a dispute with the Democratic-controlled Legislature over taxes and spending that has held up approval of the budget for the fiscal year that began July 1. Connecticut, Arizona, Pennsylvania and North Carolina lawmakers still have not approved final budgets, nearly a month late.

Rell’s turnaround demonstrates the difficulty of this recession on governors and state lawmakers. Deep spending cuts and direct federal aid from the economic stimulus are not enough in many states to wipe out budget shortfalls. Republican Govs. Arnold Schwarzenegger of California, Jan Brewer of Arizona, Haley Barbour of Mississippi and Charlie Crist of Florida also have endorsed various tax increases on cigarettes, gasoline, income, sales, businesses, and hospital beds.

Republicans, especially on the national level, generally favor tax cuts, so embracing tax hikes on the state level is significant. Barbour is head of the Republican Governors Association, whose job is to elect GOP governors. Several Democratic governors also have signed budget bills with tax increases.

Rell, who is considering seeking re-election next year, said she was supporting tax increases because “I have exhausted the (spending) cuts.” Connecticut has a two year, .5 billion shortfall.

President Obama talked about the impact of the stimulus on state governments during a town meeting Wednesday (July 29) in Raleigh, N.C. Here’s the account, with the stimulus discussion on page 5.

Obama said the stimulus spared the states billions of dollars in budget shortfalls and helped them cover benefits for unemployed workers. If the stimulus had not been in place, the president said, “imagine the situation that people would be going through right now. It would be a lot worse, and the states would be going through a lot tougher times, having to make cuts that they don’t want to make.”

For anyone seeking a perspective on how this recession compares to previous downturns, a must-read is The Wall Street Journal’s July 28 piece : “The Great Recession: A downturn sized up.”

The article and accompanying graphics assemble the proof that this recession is so much worse than any since the Great Depression. Among the evidence: the recession of 2008-2009 has burned up Americans’ wealth as no other time in modern history. Home prices have plummeted, eroding homeowners’ equity by 41 percent. Stock prices have followed the same path. “No other episode of wealth destruction since the 1930s comes close,” said the article by Justin Lahart.

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.