Weekly Wrap: Tax Panels Focus on States’ Long Term Fiscal Health

By: - September 25, 2009 12:00 am

The crisis in declining tax revenues is forcing some states to ask big questions about how they will finance government services once they get through the recession.

Many state leaders have appointed blue ribbon panels to examine their tax structure. Often these panels offer cover for politicians who do not want to appear as though they are endorsing tax increases a.k.a. “revenue enhancements.” The panel reports wind up sitting on shelves until the next panel retrieves it for their report a few years later.

Nevada has had five such reports since 1960, all pretty much concluding the same thing: the state should consider taxing individual and business income because it relies too much on revenue from gaming and retail sales. A new panel of legislators, business, education, health, public safety and transportation leaders already has hit a snag over whether they will be paid for participating in the group, according to the Las Vegas Sun.

California’s tax reform commission has bigger problems. Gov. Arnold Schwarzenegger (R) and General Assembly leaders appointed the 14-member bipartisan panel to overhaul state tax laws. The commission’s final report has missed its planned Sept. 20 release date, but drafts of its main proposals have been circulating – and inflaming – critics. Among other things, the plan would reduce personal income taxes and broaden business taxes to include more groups, according to the Christian Science Monitor .

“These proposals represent a stunning sea change in state tax policy that would increase California’s budget deficits and shift the cost of financing public services onto low-and middle-income Californians,” Jean Ross, executive director of the California Budget Project and a commission member, said in a statement.

West Virginia has a similar tax overhaul effort underway aimed at lowering business taxes to attract companies to the jobs-needy state. One particular goal is to lure high-tech firms that need to build large data centers to house computers, according to the Charleston Daily Mail .

Colorado has aptly named its panel the “Long Term Fiscal Stability Commission” and not a moment too soon. Lawmakers were told Monday (Sept. 21) that the state has a $240 million shortfall, on top of the $320 million gap that Gov. Bill Ritter (D) plugged with spending cuts in August.

Between 2006 and 2007, before the recession hit, real median household income increased in 33 states. But between 2007 and 2008, when the recession was starting, only five states – Kansas, Louisiana, New Jersey, New York and Texas – showed an increase.

This is one nugget from a treasure chest of data released Tuesday (Sept. 21) by the Census Bureau as part of the American Community Survey. The annual survey of three million addresses offers a fairly complete statistical look at characteristics of the nation’s population in 2008. The survey information released Sept. 21 compiles social, housing, demographics and economic data.

Many of the trends highlighted in the survey are traceable to the recession. For example, the survey found that fewer Americans are driving alone to work and more are car-pooling and riding public transit. The largest percentage declines in median home values occurred in the states with the most foreclosures: Nevada, California and Florida.

The Tax Foundation, a nonpartisan research group in Washington, D.C., used the Census data to rank top states and counties according to highest and lowest property taxes.

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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.