How States Are Dealing With Budget Gaps

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Massachusetts State Budget i

Massachusetts Gov. Deval Patrick signed off on a state sales tax increase from 5 percent to 6.25 percent last month. The new tax will take effect Aug. 1. iStockphoto.com hide caption

itoggle caption iStockphoto.com
Massachusetts State Budget

Massachusetts Gov. Deval Patrick signed off on a state sales tax increase from 5 percent to 6.25 percent last month. The new tax will take effect Aug. 1.

iStockphoto.com

At least 30 states have raised taxes and fees this year as lawmakers try to close huge budget gaps. States aren't allowed to run deficits like the federal government, so in lean times — in addition to cutting back — they're identifying ways to raise more money.

"States had a running number of $121 billion in projected budget gaps the last time we checked in April," says Bert Waisanen, fiscal analyst with the National Conference of State Legislatures.

Waisanen's group is working on updating that number now. Meanwhile, he's been busy just trying to keep up with the new tax hikes and fees states are passing.

Targeting The Wealthy

"A few states have had to raise income taxes but they have done so in a temporary way, primarily, and often geared toward the higher income brackets," Waisanen says.

Hawaii, for example, raised income taxes 2.75 percent on people who make more than $150,000 a year or couples who make more than $300,000. Even more common than raising income taxes: Twelve states have made driving a car more expensive by boosting gas taxes or license fees.

Choosing Items To Tax

Some states have broadened existing definitions of what's taxable to boost revenue. In Kentucky, cell phone ring tones downloaded from the Internet now are subject to the state sales tax. Massachusetts and Nevada both increased their sales tax rates.

"I don't agree with raising the sales tax," says Amber Smith, a taxpayer in Boise, Idaho. "It hurts folks that can least afford it."

Though Smith is not bothered by the fact that at least 10 states have raised their tobacco taxes — Florida by $1 a pack.

"Those are choices — you choose to smoke or you choose to drink, and if you don't want to pay the increased cost, those aren't things that are necessary to live," she says.

As you might imagine, someone who smokes has a different point of view. Mitchell Norton of Fresno, Calif., thinks it's unfair that states have focused tax hikes more on tobacco than alcohol.

"It's a much easier target for them to raise tobacco taxes because the vast majority of people — especially people with families — are going to agree with it and it's not going to raise too much of a political stink when they do so," he says.

Who Feels The Burden?

Several states also have increased taxes on tourists. In Nevada, the hotel tax is now up to 12 percent. Kim Rueben, a research fellow at the Urban Institute, says when lawmakers pass taxes on tourists, smokers and millionaires, they're just responding to what constituents want.

"They generally like taxes that they don't have to pay for," Rueben says. Though her research shows constituents are more likely to agree with taxes if they are tied to specific, popular services like health care or education.

A Short-Term Fix

Reuben's research also reveals some bad news: The tax increases this year likely won't be enough to keep some state budgets balanced over the next couple years.

"It doesn't seem like the housing crisis and what's going on with real estate is going to turn around any time soon," Rueben says. "I think we're going to have to tighten our buckles and be in for a little bit of a bumpy ride for a while yet."

This year, gambling is another area states have looked to for more money. Lottery winnings in New Hampshire and New Jersey are being taxed at a higher rate than before.

And if you just want to get away from it all — well, good luck. Idaho recently raised the cost of hunting and fishing licenses for people who live out-of-state. In Oregon, prices go up in January for everyone. A fishing license will cost $5 extra and a deer-hunting tag will set you back another $4.50.

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