Fees, taxes going up in most states

Get ready to pay.

States struggling to keep government running and balance their budgets are turning to higher taxes and fees to do the dirty work, potentially doubling the load of new taxes this year and erasing much of the savings from the high-flying 1990s.

An Associated Press analysis of budget work in all 50 states shows smokers, drinkers and gamblers are top targets. So are drivers and traffic offenders.

Businesses, too, small and large, are being forced to pay more as states confront billion-dollar gaps between the amount of money they gather and the amount they spend.

Few will escape the pain, whether it is someone buying a new tire ($2.50 more in New York), hoping to hunt big game in Wyoming ($200 more for some licenses), or seeking care in a nursing home (a $6.50 daily fee per patient in Colorado, charged to nursing home owners).

So far, of the 21 states with budgets signed into law for the fiscal year that begins in July for all but four states, Americans will pay $4.3 billion in new taxes and $2.3 billion in new fees.

Another $14 billion in proposed taxes and $2.4 billion in possible fees remain on the table in 29 states, including some of the most expensive proposals in states like California, Connecticut and Pennsylvania. In 10 of those states, legislatures have passed spending plans but governors have not yet signed them.

The increases are chipping away at the $35.7 billion in state taxes cut during the 1990s. Since the economy went sour, states raised $9.1 billion in new taxes; this year, more than twice that is possible now -- some $18.3 billion in new and proposed taxes.

What it means

While states scramble for money, the federal government is cutting taxes. What does that mean to the average American? Some will pay more to their state than they get back from Washington, others will come out ahead -- depending on where they live and their habits, like smoking, drinking or speeding.

At Congress' insistence, President Bush's federal tax law gives states $20 billion over the next two years. That could ease pressure for taxes and fees, though many policy-makers say the money will go mainly to putting off program cuts or into near-empty reserves.

Governors and legislators say they raised taxes and fees reluctantly -- because they saw few other choices. Budget problems were too severe to be solved by spending cuts alone.

Each choice is difficult, because it has immediate pocketbook consequences for workers, poor people and families. And each decision could bring political consequences, whether for governors living up to campaign promises or legislators worrying about elections.

"Nobody ever likes any tax," said Pennsylvania Gov. Ed Rendell. But he vowed during his campaign last year to tackle the state's tax system, which he says underfunds schools.

So he proposed a sweeping restructuring that would raise income taxes and cut property taxes. Rendell, a Democrat and former Philadelphia mayor, said the state would thrive with stronger education and business opportunities, while the wealthy would pay more and the middle-class slightly more. He braced for criticism.

"You have no choice. Any revenue-raising item, you're going to tick people off," he said. Pub owners complain about the tripling of the malt beverage tax. Cell phone users don't like higher bills. Said Rendell: "You try to be as fair as you can in spreading the tax burden."

Now, he faces a challenge getting his way in a GOP-controlled legislature, where budget deliberations are just beginning.

Much work remains in 18 other states, where lawmakers also are looking at cuts in services -- usually, before they resort to taxes -- to fill in their state's financial hole. Governments will earmark some tax and fee increases for a specific purpose, like fixing potholes, to try to preserve that service.

In the streets and corporate offices of the country, demands for more state money have upset taxpayers.

But 17 states have proposed or passed higher cigarette taxes this year.

So-called sin taxes on cigarettes, beer and gambling are the biggest targeted tax -- meaning they're only aimed at one segment of the population. They're easy money with little risk: People like their vices, rarely speak up when they're taxed and the levies hit a relatively small group. Some $1.5 billion in sin taxes are being considered nationwide, with $455 million already passed into law.

Business taxes

Business taxes are also climbing. So far, the 21 states that have passed their spending plans hope to raise at least $329 million from new or higher taxes -- and from closing loopholes or ending tax exemptions -- on business. Another $1.2 billion is being debated.

Broad-based taxes -- income, sales and property taxes -- still bring in the most new revenue, simply because they tax nearly everyone. Even though they've only passed in six states so far, the first $3 of every $4 in increased taxes that's been approved has come from such taxes.

But broad-based taxes can also make a lot of people angry. In many states, fees are the choice.

Like officials in Florida and Colorado, Massachusetts' Republican Gov. Mitt Romney relied heavily on fees in his spending plan. One proposal would charge blind people $10 for a certificate of blindness so they could access state services.

"The injustice of it, of course, is that the wealthy have benefited greatly from tax cuts," said Bob Hachey, blind since birth and a member of the Bay State Council of the Blind. "And here they are trying to charge little fees on the poorer folks."

The fee is only an "annoyance," he said -- but one that's a symbol of the sweeping cuts for health and social services that denied the visually impaired coverage for glasses and prosthetic eyes. "It's just a tip of the iceberg."

Florida turned to fees too, with many lawmakers proud to avoid a tax increase. Some skeptics, however, said the state was just relying on borrowing and financial gimmicks to get by.

"The day of reckoning is coming," warned Republican state Sen. Tom Lee at Florida's end of session. "I have voted for my last budget in the state of Florida that's put together with Band-Aids and paperclips."

Understandably, the big states have the biggest impact -- New York's $2.6 billion in higher taxes and canceled tax breaks account for nearly half of the country's total new taxes, so far. California alone has proposed $7.5 billion in new and higher taxes.

Businesses in many states say they're being unfairly targeted, and warn the result will be a weaker economy.

Still, some see nothing wrong with paying more.

Steeper fees for fishing licenses? "I think it's fair," said Prague, Okla., angler Aaron Fridrich. "The way I look at it, you're going to get back a lot more than what you pay for."

The new taxes and fees are all part of the states' larger financial puzzle.

Weaker-than-expected revenue left states overall facing an estimated $80 billion deficit in the fiscal year that begins in July. Every state except Vermont is required to balance its budget, so the money gaps must be resolved -- either through a stronger economy, higher taxes and fees, cuts or borrowing.

Tax and fee proposals nationwide, even if all became law, account for less than a third of that $80 billion. Cuts, borrowing and short-term maneuvers are covering the rest of the gap.

Even in those states where people won't see higher taxes or sweeping fee increases, lawmakers are keeping their fingers crossed for next year.

Hawaii got by with no significant fee or tax increases -- except lawmakers built their budget estimating a rosy 4.3 percent growth in tax revenue. Through April, growth was just 0.4 percent.

In Montana, compromises between conservative and moderate Republicans left the state with a considerably higher cigarette tax and tens of millions of dollars in cuts.

"This is just like those rough years in a family's life, when you just have to pull in your belt," said Montana Gov. Judy Martz, a Republican. "It leaves out some. You can't just be there for everyone. It hurts."