Cash-strapped states avoid word 'taxes'

Rise disguised as penalty, fee
By Valerie Richardson
Washington Times
Feb. 04, 2010

DENVER | Faced with severe budget shortfalls after a steep economic recession, state legislatures and governors are trying to raise money without raising taxes — at least not technically.

A fee hike, an increased penalty or fine, the elimination of a tax exemption — none of these technically counts as a tax increase, as far as many state lawmakers are concerned. Fiscal conservatives argue that a tax hikes are exactly what they are, but their arguments are likely to fall on deaf ears for legislators and governors wrestling with some of the worst budget deficits since the Great Depression.

"There's a certain American antipathy to raising taxes, so even if these are tax increases, there's an incentive to call them something else," said Joseph Henchman, director of state projects at the conservative Tax Foundation. "It's a trend we always see, but it's certainly going to be one that's stronger this year."

The National Conference of State Legislatures found that 35 states and Puerto Rico are facing deficits for fiscal 2011, despite the Obama administration's $787 billion recovery package, which pumped tens of billions of dollars into state coffers last year.

A report issued in December by the National Association of State Budget Officers (NASBO) and the National Governors Association found that states raised taxes and fees by $23.9 billion in fiscal 2010, nearly tripling the $8.1 billion in such increases implemented the previous year. More increases are likely in the coming year, although they probably won't match last year's total, said Scott Pattison, NASBO's executive director.

"I predict we're going to see more, whether state park fees or hunting licenses," said Mr. Pattison. "[But] I'm assuming not as many as before, because we're going into an election year, and well over half the governors are up for re-election."

On Monday, the Colorado House of Representatives approved eight bills eliminating tax exemptions on items ranging from online sales and farm equipment to restaurant napkins and plastic foam containers. The bills passed with no Republican support.

Were those tax increases? It depends on your political bent. To Democrats, the votes merely rid the books of tax breaks and loopholes for big business in order to avoid cuts to public schools and social services.

"It's time for corporate and other special interests to pay their fair share, and suspending a small fraction of the over $2 billion Colorado loses every year in corporate loopholes and giveaways is not too much to ask," Alan Franklin, president of ProgressNow Colorado, said in a statement after the vote.

To Republicans, the bills meant raising taxes on many of those who can least afford it: struggling farmers and ranchers, people running Internet-based businesses out of their homes, small businesses teetering on the brink of insolvency.

"At the worst possible time, we're making a choice to raise taxes on people who can't afford them anymore," state Rep. Scott Tipton, a Republican, said during the floor debate. "It's an overreach by government."

Colorado's Taxpayer Bill of Rights forbids the state legislature from enacting tax increases without a popular vote, but the state Supreme Court cleared the way last year for the legislature by ruling that a vote is not necessary to eradicate tax exemptions.

When there's no way around a tax increase, states prefer to put the squeeze on a small minority of the population, such as high-earners.

In Oregon, voters gave their blessing last month to a so-called millionaire's tax, which raises taxes on household incomes of more than $250,000. Voters also approved a measure to set a higher minimum tax on corporations.

Both passed by margins of about 53 percent to 47 percent, and were the first tax hikes approved by Oregon voters since 2002. The "Vote Yes for Oregon" campaign, led by teachers unions and public-sector unions, said the measures are needed to balance the state's estimated $727 million two-year budget shortfall.

Other states are considering so-called "sin taxes," which typically target smokers, drinkers and gamblers. In New York, Gov. David A. Paterson, a Democrat, has proposed slicing the state's projected $7.4 billion deficit by, among other things, slapping a tax on soda and adding another $1 to the cost of a pack of cigarettes.