Tax increases a topic in several states

Friday, November 16, 2001

After seven years of tax cuts, a few states are now reluctantly looking to raise them as state economies worsen and money for government services becomes scarce.

So far, North Carolina is the only state to pass a significant tax hike. But leaders in Ohio and Indiana are talking about it, and cuts passed or promised last year are now looking shakier in Virginia, Massachusetts, New York and elsewhere.

"We just concluded there's only so much you can cut," said North Carolina Rep. Paul Luebke, a Democrat who sits on the House finance committee. The state's new budget raises income and sales taxes by $620 million.

"We're one of the few that have the courage to bite the cliched bullet," said Luebke.

Emergency budget-cutting continued this week with special legislative sessions in Arizona and Connecticut, following emergency actions by Florida, Hawaii, Iowa and beyond. Since all states except for Vermont must balance their budgets, state lawmakers can't approve deficit spending like their congressional counterparts.

Forty-four states saw revenue growth fall from August through October, according to a Nov. 1 report from the National Conference of State Legislatures. Budget cuts were passed or on the table in 28 states, the report said.

Now, with the states' already weak economies worsening after Sept. 11, these tax issues have emerged:

Virginia Gov. Jim Gilmore, a Republican, announced Thursday he won't be able to fulfill a campaign promise and eliminate a much-hated tax on cars and trucks.

Indiana Gov. Frank O'Bannon, a Democrat, has suggested a new cigarette tax to help cover a $1.3 billion deficit.

Ohio Gov. Bob Taft, a Republican facing a $1.5 billion deficit, wants $465 million in targeted business taxes.

There are also proposals for new taxes in Alabama, Wyoming, Tennessee, and Washington state.

Arkansas tax opposition

If the economy continues to slide, the pressure will build to increase revenue to pay for government services, economists say. But tax proposals -- almost always unpopular with voters -- face bruising tests in legislatures. Many leaders remain adamantly opposed.

"Asking Arkansas families who are already wounded from a hurting economy to pay even more in taxes -- that would be like asking a bleeding friend to donate a pint of blood," Gov. Mike Huckabee said in a statewide television address Wednesday.

Tax cuts, on the other hand, have proven popular. Since 1995, states cut an aggregate $36 billion in taxes, the NCSL said. That includes $1.8 billion cut last year, when forecasters already predicted the economy would slow.

"Politically it is very difficult," said Harley Duncan, executive director of the Federation of Tax Administrators, a group that monitors state economies. "Many of these elected officials ran on a very firm no-tax-increase platform. But the sands really shifted beneath them."

He and other forecasters were hesitant to predict a wave of new taxes.

"Ask me the question two months from now," said Arturo Perez, a fiscal analyst with NCSL. "We know it's getting worse. But have we seen the worst times behind us, or is there a continuing slide?"

Before widespread tax increases become unavoidable, most states will cut spending, delay big projects and dip into cash reserves that were built up after the last recession in the early 1990s.

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