Some Governors Are Getting it Right on Taxes

March 15th, 2012 at 11:02 pm

Oftentimes in public policy, particularly when national politics is frozen, you have to look to governors and states to see what’s coming.  They can’t run budget deficits, it’s harder for them to run around squawking about stuff without doing much about it—basically, they’ve got to run stuff like education, protective services, infrastructure programs.

And again, unlike Congress, you can’t run that stuff by touting the growth magic of supply-side tax cuts…I mean, some governors do, of course, but they can’t stop there.   Which is why we’re seeing many of them, dozens according to this piece from The American Prospect, raise new revenue (note excellent quote from my CBPP colleague Jon Shure).

I’m writing from Sacramento this AM, where, according to the banner headline in the Sacramento Bee “Brown, allies strike tax deal” on a revenue proposal to go on the November ballot out here (little rule of the trade here for fellow members of the travelling punditry: read the paper of the place you wake up in).

Tax measures to raise new revenue may also make it to the ballots in KY, MD, MA, NY, NC, RI, PN, and WA, and note that some of these gov’s are R’s.  Proposals are likely to range from base-broadeners, like ending exemptions for favored goods under a state sales tax, taxing online sales, new fees, and higher income tax rates.  Many plans, like the CA one, combine both a sales tax increase (from 7.25% to 7.5%) with an income tax increase on high earners.  It would then be slated to expire after seven years.

Obviously, the sales taxes are more regressive than the income taxes targeted at the wealthy.  Many of the sales taxes are “Pigovian,” e.g., on soda or cigarettes (WA is contemplating a registration fee on “roll-your-own” cigarette retailers).

One thing you’re seeing a bit of that strikes me as smart: tying a tax to a valued service.  It’s a lot less resonant to say “we must raise more revenues to meet our budget” than “we’re going to add a surcharge to oil production to pay for schools.”  The more granular the better, as in not just “pay for schools” but “to renovate our schools to be more energy efficient” or to “bring down our student/teacher ratios.”

Of course, state legislatures will block many of these proposals but notably, the Bee reports that the compromise measure described above was polling at 63% approval in recent weeks.

I’m aware that writing in support of tax increases won’t win you a lot of friends, but frankly, this is nothing more than a reality check.  We can’t balance budgets at any level of government on spending cuts alone.  Candidates running for president may argue otherwise, but it’s good to see people who actually have to get stuff done beginning to argue otherwise.

 

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14 comments in reply to "Some Governors Are Getting it Right on Taxes"

  1. Pronghorn says:

    Actually you CAN balance a budget by reducing spending. The problem with raising taxes is that it might increase revenue, but it might not.

    When tax laws change, people and businesses change their behavior to adapt to the new law. An increase in taxes can cause individuals and businesses to buy less, or to move to another state, both of which will reduce economic activity in the state. Less activity = less tax revenue.


    • Fr33d0m says:

      California is known country-wide as having high tax rates. If the tax rates caused businesses to leave the state then please explain why they all haven’t. Better yet, explain how California businesses haven’t folded because of high taxes.

      Of course you cannot do these things–at least not with any credibility–because none of the things you mention are true. An increase in taxes does not cause businesses to leave profit on the floor because they don’t want to pay those taxes. Tax rates country-wide have been much higher than they are now and the economy boomed in those times. You cannot explain those things with a fealty to an ideology, you have to use facts.


  2. PeakVT says:

    “One thing you’re seeing a bit of that strikes me as smart: tying a tax to a valued service.”

    That may be a good strategy for getting any particular tax or tax increase passed, and thus a good tactic for fixing the budget in any particular year, but in the long run I think it’s a bad idea. Tying a particular tax or slice of a tax to a particular spending program limits government’s ability to maneuver because less of the total take goes into the general fund for the legislature to appropriate as it sees the need each year. I also think it tends to lead to a complicated and inconsistent tax code because it is far easier to sneak in a targeted increase (or cut) than to increase a broad-based tax. From a policy perspective, a complicated and inconsistent tax code is pretty much the opposite of what we want.


  3. the buckaroo says:

    “I’m aware that writing in support of tax increases won’t win you a lot of friends”…but it may win you neighbors. The Tea Bladders have body snatched the pseudo-Republican remnants of once proud & rational party.

    We have both sides of the state legislature so ALEC isn’t a huge issue as in other states. California one of the few states that could tax the rich & recirculate the vast pool of frozen capital (both money & labor) & produce much good.

    Welcome to the sprawl. Great town, horrible layout…never grew up, just out.


  4. Joe Marinaro says:

    Your position is why I think we should fund a national infrastructure bank by lowering the lowest marginal tax rate (currently 10%) and shift those revenues to a payroll tax dedicated to the Infrastructure Bank.

    If infrastructure is as critical as people say (and I agree it is) then by reserving tax dollars dedicated to that purpose we will have a reliable source of funding.

    Dems should like it because it provides funding for a major government program and Repubs should like it because it doesn’t increase spending. Conversely, Dems will hate it because they would have to find cuts elsewhere in the budget and since it institutes a payroll tax as opposed to the lowest tier income tax, the broader base taxes lower income earners.


    • Fr33d0m says:

      “Dems should like it because it provides funding for a major government program”

      That myopic view of why the Dems would like it is as sad as it is uninformative and incorrect.


  5. Rima Regas says:

    Jared, I’m a citizen of CA, and one with a child who depends on the services CA has to offer its developmentally disabled population. Gov. Brown’s predecessor was brutal when it came to trying to cut services from those who need it the most and have the smallest voice. Gov. Brown has been no less ruthless in his approach, slashing developmental services and education even further – to the point where the Supreme Court stopped really deep cuts and reversed other measures that would have hurt service providers. I’m glad he’s finally willing to tax the rich, but those who can least help themselves are still left in the lurch. Some pretty terrible proposals are on the table right now. Brown should be ashamed of himself. He knows about the Social Contract. He used to abide by it. So while I am glad that things are moving in the right direction, I am reserving my happy dance for the day I see the resulting legislation.


    • Will says:

      My happy dance will be the day we not only get a handle on our budget, but start spending more on our education system than our prison system. It’s high time we valued educating citizens more than punishing them. California’s budgeting process is insane and the ballot initiative process only complicates it further.


    • Fr33d0m says:

      Rima,

      One thing you have to realize is that the balanced budget laws in Cali tie Brown’s hands a bit. If revenue cannot be raised then cuts have to happen so yes Brown is being ruthless in cutting. The only hope he has is in changing the politics enough to get a revenue measure through the process. I’m not specifically trying to defend him, but its hard to see any other answer until Califonians change the law.


  6. Dennis says:

    I see that NC is on the list of states where revenue increase proposals may make it onto a ballot. I generally expect the rhetoric from our state legislature to be predictable and overblown; casual conversation with my neighbors is a much better source for me to get the feel for what is going on with voters. I’m in an urban area in the middle of a rural area, so I hear from Democrats, Republicans, Libertarians, Greens, and even the occasional Socialist. Our state budget has already been cut so deeply that even many conservative citizens are concerned that we may be damaging our reputation for exception education, something that bring revenue into our state far beyond tuition dollars. From what I’ve heard so far, if the public gets the chance to vote, many people who cringe at the idea of raising taxes would vote to raise taxes, because the long-term risks of not having money for education outweigh the short-term benefits of saving the money spent on teacher salaries and the like. I can’t speak for the rest of the state, but in my area, people would likely support a targeted tax increase.

    Your mileage may vary, but we seem to be recognizing the danger of the “lower taxes at all costs” mindset of the Republican majority in our state legislature.


  7. PeonInChief says:

    Tying taxes to particular services is what has gotten California into some of the trouble it’s in. People are much more willing to pay taxes for schools (how many people hate kids, ferhevensake) than for supportive services for the disabled, or anything perceived as benefiting single mothers, the homeless etc.


  8. save_the_rustbelt says:

    Some minor good news, in the center of the country it seems school levy votes are succeeding more often (no hard data yet, just an observation).

    Otherwise, many taxpayers are pinched for cash and are suspicious about the competence and integrity of public officials and public unions.

    Specific service levies are very popular in Ohio and pass much more frequently than general purpose tax increases.

    Accountability.


  9. Jean says:

    This is probably completely off subject, but there is a really good article by Chris Mooney on the conservative brain http://thinkprogress.org/romm/2011/11/08/363268/the-republican-brain-science-mooney/?mobile=nc

    Read all the links. Very, very interesting.


  10. jo6pac says:

    I live near by to Sacto. and I would love to see a change in Prop. 13 for Corp. Amerika in the state. They need to pay their share.


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