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* Things are tough all over…
* The Ohio Senate is considering a $54 billion two-year budget passed by the House that was balanced by cutting education spending by $244 million, depleting the state’s reserves of $1 billion and incorporating $2.2 billion of federal stimulus money. Even then, the plan includes projected deficits of at least $2.5 billion in each of the next two years.
* The Indiana State Budget Committee last week requested a new, more accurate revenue forecast for lawmakers to use in a pending special session after April tax revenue fell $255 million short of what had been forecast just one month earlier. […]
* Washington Gov. Christine Gregoire last week signed a two-year budget that closed a $9 billion shortfall by cutting 40 percent in state payments for low-income health coverage, raising state employees’ health care benefits by less than half the rate of inflation and reducing per-student education allocations. […]
* In Oregon, where the projected shortfall of $3.8 billion is equal to nearly a third of the overall budget, Democratic lawmakers proposed a 2009-11 budget that would eliminate 1,700 state pensions, cut spending on community colleges and higher education and seek $800 million in new taxes.
And then there’s California. Go read the whole thing.
* Art Laffer isn’t quite clear on the concept in the Wall Street Journal…
New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the “fair” way to close his state’s gaping deficit.
Laffer used Quinn to help make a point about increasing taxes on upper income folks, but he got his facts wrong. Low income people with no dependents would also see higher taxes under Quinn’s original plan. Moderate income folks would also be hit. I suppose if $60,000 a year is considered “wealthy,” then, yes, they and everyone above would have to pay more. Par for the course on the WS-J op-ed page, I suppose.
* Related…
* SJ-R: Why cuts won’t balance state budget
* PJStar: Springfield should lower its sights, cut taxpayers some slack
* Sausage the real way, minus the bull
posted by Rich Miller
Tuesday, May 26, 09 @ 9:08 am
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California is also a cautionary tale of the excesses of populist reform.
They’re so tied up in knots there with tax caps, referendums and recalls, their legislature is virtually powerless to make a move, even if they wanted.
Which they might not. Rigid, non-competitive, gerrymandered districts reward extremists on both ends of the spectrum who are more interested in remaining pure than solving problems.
It’ s a ridiculous mess. The solutions? Redistricting reform, somewhat like Iowa, is on the way, likely to be followed by a state Con-Con (what a great idea!).
The Economist had a nice overview last week.
http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=13649050
Comment by wordslinger Tuesday, May 26, 09 @ 9:29 am
When you are the worse governed state in the US, and are hit by an economic turndown - to claim that other states are in the same situation just because they also face an economic turndown, denies the depth Illinois has fallen.
There is a difference between a functioning state government hit by a recession and Illinois, just as there is a difference between being hit by a snowstorm in your 1974 New Yorker, while others are driving 2006 New Yorkers in the same snowstorm. We are worse off.
Which state is going to bounce back from their budget debacles faster? Even in California, voters are at least forcing a change, while in Illinois, voters can’t. So even California will crash sooner than we will, and bounce back with a chastised, and wiser, legislature. (Our General Assembly seem unable to learn anything except how to gerrymander themselves to re-election.)
Yes, many states are feeling the pinch - but why not all of them? Why are the states better off than Illinois, better off? If we compare we will simply prove what many Illinois policy makers refuse to acknowledge - smaller government is better government in good and bad times.
Our economic crash comes on top of a decade of governmental stagnation and ruinous unbalanced budgets, (don’t claim any of them have been balanced, please). The only thing this state has been able to do over the past decade is reward the party out of power for the past generation with over-the-top spending plans. So please don’t find solace in knowing that states with functioning state governments are also having problems raising money from strapped citizens. At least they have a functioning government and are empowered to pass laws reigning in their disasterous legislatures and governors.
We are far worse off.
Comment by VanillaMan Tuesday, May 26, 09 @ 9:33 am
This is an interesting point from the SJ-R “Our tax system is regressive, but Illinoisans’ state/local tax burden ranks 30th highest nationally, according to the nonpartisan Tax Federation.”
Looks like we have some room to implement a temporary increase compared to other states.
Comment by Ghost Tuesday, May 26, 09 @ 9:47 am
I agree with Ghost.
Illinois is clearly a low tax state . Did you see the what the tax rates are in the real ’soak the rich’ states?
Comment by Leroy Tuesday, May 26, 09 @ 9:56 am
It is important to note that altho Illinois is a low “state tax” state, you have to add the township tax burden to the equation. Illinois has the most extensive township form of gov’t possibly in the whole USA. The township gov’t provides some of the services that other states at the state level. So, if you add the township tax burden into the equation, the Illinois tax burden is higher than it appears. We still have a bit of room there, however. The reality remains - raise taxes, hurt economy, hurt tax receipts. We can hope that companies won’t leave the state since, supposedly, other states are in the same boat. However, VM is right, Illinois is so much worse in so many ways that business interests may see moving as an easy option.
Comment by dupage dan Tuesday, May 26, 09 @ 10:18 am
BTW - I agree, however, that if a tax must be raised it should be temporary and earmarked to address the problems that the state has, not go into new spending. That’s gonna be tough since one major problem is the pension (as a state employee, I will benefit from that) and it will be VERY HARD for the GA to enact a temp tax to take care of that, as opposed to bridges/roads/schools.
Comment by dupage dan Tuesday, May 26, 09 @ 10:23 am
“Yes, many states are feeling the pinch - but why not all of them?”
I think pretty much all states are feeling the pinch. I think the latest number is that 47 states are facing budget shortfalls.
The ones that aren’t are Montana, North Dakota and Wyoming.
What do they have in common? They have no people there.
Comment by George Tuesday, May 26, 09 @ 10:28 am
DD: “The reality remains - raise taxes, hurt economy, hurt tax receipts.”
I disagree. I would argue that raising taxes temporarily helps the economy. It injects money and spending into the economy, which is deperatly needed at a time when most people are not spending.
In fact, I would suggest that by firing more Slaried employees, not paying current bills that are due, and scaling way back the money spent in the economy by cutting Govt you do far more dmg to the economy. All that money for Govt operations and programs also acts to stimulate the economy.
Also the more money the State is spending, the more money is out there to tax. If you eliminate all the different vendor purchases, contracts and salaries attached to the State budget you will be substantialy recuing tax reciepts at the samer time you are removing money from the economy.
Temporarily raise taxes and you stimulate the economy and tax reciepts when it is needed most.
I absolutely agree with you that the increased tax should be temp, and she be earmarked only to address the deficit/money owed issues and should not serve to fund new or increased programs at this stage. Any taxincrease should have an automatic sunset.
Comment by Ghost Tuesday, May 26, 09 @ 11:12 am
raising taxes temporarily helps the economy… How can taking money from your neighbors help them?
Government spending is highly overrated, as we are seeing today. The Stimulus is not working.
Comment by VanillaMan Tuesday, May 26, 09 @ 11:21 am
“How can taking money from your neighbors help them?”
Because the money goes back into the economy to keep the business that they like to use operating; it provides salaries and money for people to spend at their employers. It causes dollars to be circulate into the economy.
The fewer dollars moving in the economy, the more buisness close, the more people get laid off etc. The couple of dollars hoarded in hand are actually doing more damage to the economy then circualting money through the payment and puchase of services by the Govt itself and by its employees.
How will letting my neighbor hang onto 500 dollars a year, but laying him off becuase his business went bankrupt do to lack of spending in the economy help him. He has lower taxes, but no job or place to live.
How can removing money frm the economy, increasing unemployement rates by firing more people and removal of billions of dollars in purchasing by the State help my neighbor or the economy?
Comment by Ghost Tuesday, May 26, 09 @ 12:20 pm
California is clearly in worse shape than Illinois. California is a high income tax state which is next to a no income tax state( Nevada). That doesn’t help make things an easier.
Comment by Steve Tuesday, May 26, 09 @ 12:28 pm
And in the midst of all this controversy, Governor Quinn is already looking to move on to his next gig…
Comment by George Tuesday, May 26, 09 @ 12:30 pm
LOL. I think that’s a different Pat Quinn, but it’s not a bad career plan either way.
Comment by Rich Miller Tuesday, May 26, 09 @ 12:32 pm
Because the money goes back into the economy to keep the business that they like to use operating; it provides salaries and money for people to spend at their employers. It causes dollars to be circulate into the economy.
I think I hear Milton Friedman’s ghost laughing…
Comment by VanillaMan Tuesday, May 26, 09 @ 1:04 pm
VanillaMan, the concept is sound, although highly controversial and possibly dangerous. With consumers halting spending at a very high level, a small tax hike would force money into the economy that otherwise would’ve been saved and not spent.
Comment by Rich Miller Tuesday, May 26, 09 @ 1:06 pm
What this ill patient needs is leeches! We need to get their blood moving, so we will apply leeches at every joint on their body…and if that doesn’t work, we’ll just do more blood-letting by bringing in a barber with his razors! That will get the blood moving!
Comment by VanillaMan Tuesday, May 26, 09 @ 3:11 pm
California is a high income tax state which is next to a no income tax state( Nevada).
Would you rather live in Orange County or Primm, NV? There are a few reasons for NV’s low tax rate, not all of them good.
Comment by Six Degrees of Separation Tuesday, May 26, 09 @ 3:56 pm