December 21, 2009
Study: States Turn to Targeted Tax Hikes, One-Time Gimmicks for Budgets
Tax Foundation Review of Major Tax Changes in 2009 Finds Trend of Taxing High-Income, Smokers, Out-of-State Business Transactions
Washington, DC, December 21, 2009 -- A new Tax Foundation analysis of significant state tax changes in 2009 shows that most states enacted targeted increases or used the politically convenient option of one-time funds and accounting gimmicks to deal with budget shortfalls. Nine states increased individual income tax rates (five states reduced their rates), six states raised general sales tax rates, 17 states increased excise taxes on cigarettes and five states increased rates of alcohol excise taxes.
"Two states - Arkansas and Indiana - managed to roll back spending growth commitments and take actions to limit spending, but other states have either kicked the budget can down the road or increased taxes," said Tax Foundation Director of State Projects Joseph Henchman, who authored Tax Foundation Fiscal Fact No. 204, "A Review of Significant State Tax Changes During 2009." The Fiscal Fact is available online at http://www.taxfoundation.org/publications/show/25641.html.
"With state revenues declining due to the tough economic situation, most state leaders in 2009 have tapped high-income earners, smokers, out-of-state business transactions, or other targeted groups, those being the only people that politicians feel safe raising taxes on," Henchman notes. "But the increases have come from a minority of states, and others should be cautious about enacting substantial tax increases in the midst of a recession on anyone."
California, Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin increased individual income tax rates, while Louisiana, Maine, North Dakota, Ohio and Vermont reduced them. States that increased sales taxes include California, Massachusetts, Minnesota, Nevada, North Carolina and the District of Columbia.
Other miscellaneous tax changes in 2009 include obesity and soda taxes, excise taxes on plastic bags (often mischaracterized as "fees") and "Amazon" taxes, which force out-of-state retailers to collect sales taxes from customers if the companies have affiliate and advertising relationships with in-state businesses.
"When the recession ends, states need to have the right policies in place that will promote economic growth and maintain revenue stability," Henchman concludes. "Relatively high taxes on high-income individuals, smokers, and out-of-state business transactions can make a state less attractive and create more volatility in an already uncertain economic climate."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
###
Tax Foundation Fiscal Fact No. 204, "A Review of Significant State Tax Changes During 2009" is available online at http://www.taxfoundation.org/publications/show/25641.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.