August 31, 2009
"State, Local Services Hit as Revenues Fall"
By David Dickson
No sooner had state lawmakers around the country gone home after spending months plugging ever-widening budget gaps for fiscal 2010 than signs of new trouble began to emerge.
After finally closing the books on budgets that began July 1, many legislatures must now call members back to square spending with revenues that can't seem to keep up. ...
Three states—Hawaii, Oregon and New Jersey—joined California by jumping into double-digit income-tax-rate territory.
"So-called 'millionaire taxes' on high-income people are politically safe targets for politicians to tap in a recession," said Kail Padgitt, a staff economist at the Tax Foundation, a nonpartisan tax-research group. "The problem with these kinds of taxes, as evidenced by California, is that soaring revenues in good economic times encourage excessive spending, which leads to an inevitable budget shortfall during downturns."
The Tax Foundation noted that California's general-fund spending increased 31 percent to $99 billion between 2003 and 2007, despite the fact that inflation totaled only 12 percent and population growth was just 5 percent.
"States shouldn't assume that revenue surges in good times will continue indefinitely, and the more reliant a state is on high-income earners, the bigger hit that state will sustain when those revenue surges eventually end," said Mark Robyn of the Tax Foundation.