As US Cuts Taxes, States Hike Them ; New York's $2 Billion-Plus Tax Hike Is Just the Latest of Several Overhauls That Could Recast the Social Safety Net

Article excerpt

In Washington, this may be the era of tax cuts and more tax cuts. But in statehouses around the nation, it's increasingly a time of big tax increases.

Faced with budget shortfalls and mounting pressure to avoid cutting social services during economic doldrums, more state lawmakers are abandoning their usual reluctance and raising taxes, some boldly enough to risk their political futures in the process. Alabama, New York, California, and Nevada are moving to raise taxes by record amounts.

The growing gap between Washington and states on taxes stems partly from the requirement most states face to balance their budgets - a mandate Washington doesn't have. But it also highlights an increasing division - including within the Republican Party - over the role of government in a weak job climate. In fact, the trend may herald the rising role of states as key providers of America's social safety net.

In most states "we're going to see big tax increases this year. It almost seems inevitable," says Nicholas Jenny, a tax analyst at The Rockefeller Institute of Government in Albany, N.Y.

This doesn't mean states are boosting income taxes across the board. They're targeting higher-wage earners instead. But the magnitude of the increases in some states is stunning. In many cases, sales taxes are going up, affecting whole state popluations.

Consider what happened in Mr. Jenny's home state of New York this month: The Republican-controlled Senate overrode Gov. George Pataki's veto of a tax increase of more than $2 billion. By one measure, it's the largest hike in state history.

How is it that a Republican-led senate championed a giant tax increase? First of all, at the state level, "Ideology matters less than you would think," says Mr. Jenny. New York faced an $11.5 billion budget gap. Something had to be done.

But in passing the hike, the legislature also undid roughly $1.3 billion in cuts to education and healthcare that Governor Pataki had planned. Raising the sales tax and income taxes for those making more than $100,000 clearly aims to ensure the state provides for its citizens during tough economic times. "New Yorkers expect government to serve them," says John Zogby, an independent pollster in Utica. "We're the original welfare state."

That's far less true in Alabama, a famously tax-averse place. But even there, a conservative Republican rookie, Gov. Bob Riley, recently shocked many by proposing a $1.2 billion increase in sales, income, and other taxes - mostly aimed at boosting education. …


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.