Many states raise taxes to help balance budgets


Policymakers in 30 states passed tax increases last year, according to a July 2009 report by the Center on Budget and Policy Priorities. Those include states with both Republican and Democratic governors, who took balanced approaches to resolving their state’s budget shortfalls.

According to the Center’s report, 11 states raised income taxes, 12 raised sales taxes, 11 raised business taxes and 15 raised tobacco and alcohol taxes. Some states raised more than one tax. Here’s a sample of tax increases from the Center’s report.

  • Wisconsin passed a new 7.75 percent income tax bracket (for married couples making more than $300,000 and individuals making more than $225,000). Along with other income tax changes, the package will raise $280 million in 2010.

  • California passed a 0.25 percent across-the-board increase in all income tax brackets, expected to raise $5 billion in FY 2010.

  • Hawaii temporarily created three new higher income tax brackets, starting at $300,000 for a married couple. Hawaii’s top income rate will be 11 percent until 2015, up from 8.25 percent. (Hawaii also increased standard deductions and personal exemption amounts by 10 percent. That will lower tax bills for low- and moderate-income families.) The package raises $100 million for the biennium.

  • New Jersey temporarily increased income taxes on households earning more than $400,000, raising $1 billion in FY 2010.

  • Iowa limited the size of five different business tax credits, saving the state $18 million in FY 2010.

  • Nevada temporarily raised the sales tax rate from 6.5 percent to 6.85 percent, raising $280 million over the biennium.

  • Wisconsin raised its cigarette tax by $.75 a pack to $2.52 and changed the method for taxing snuff. The taxes are expected to raise $170 million a year.

The Center on Budget’s analysis said during a recession, tax increases could help the economy recover more effectively than spending cuts. Maintaining programs that help people in need means those dollars are quickly spent in the local economy. On the other hand, “high-income households typically spend only a fraction of their income and save the rest,” the Center wrote, quoting a letter signed by 120 economists. “As a result, each $1 increase on taxes on high-income households will reduce their spending by much less than $1.”

The only Minnesota tax increase mentioned in the report? The $51 million cut to the Renters’ Credit that occurred under unallotment.

States are continuing to face budget shortfalls: roughly four of every five states face budget deficits in FY 2010. Deficits are expected to continue into FY 2011. Recent headlines report that states continue to look for balanced approaches. During her recent State of the State address, Gov. Jan Brewer (R-Arizona) “renewed her call for a sales tax increase to help” cover the state’s $5 billion deficit, the Phoenix Business Journal reported. The Seattle Times told a similar story about Gov. Chris Gregoire’s (D-Washington) State of the State speech. Gov. Gregoire said, “she can’t abandon her values or ‘eliminate the safety net for our most needy and cripple our economic future.'” Both states still plan to make budget cuts, in addition to the revenue increases.