The Monty Python character expressed something that all politicians aspire to when he said, "To boost the British economy I'd tax all foreigners living abroad." Every elected official would prefer that any taxes be paid by someone who can't vote them out of office. It's not any different in Missouri, which recently triggered a war of words with its neighbor, Kansas.

Kansas Governor Kathleen Sebelius is becoming irritated about a seemingly arcane provision in a recent tax bill signed by Missouri Governor Matt Blunt. The provision does what all states would love to do: It raises taxes on people who work in the state but live and vote somewhere else. And for the Kansas residents who work in Kansas City, Missouri, that means their taxes have been raised by people unaccountable to them.

Earlier this year, Governor Blunt signed into law H.B. 444, an ill-advised bill that created a tax break for better off seniors who receive Social Security benefits. Included in this legislation is a provision ensuring that anyone who works in Missouri, but lives out of state will no longer be allowed to write off their out-of-state property taxes if they itemize on their Missouri income tax forms. This means that many workers who live outside of Missouri will pay higher Missouri income taxes. This is a good thing for Missouri, which is struggling to provide adequate health care and education.

But if you're a policymaker in neighboring Kansas you'd quickly understand that workers who live in Kansas will actually pay less Kansas income tax because they can claim credits for taxes paid to other states. Governor Sebelius asked Governor Blunt to repeal this provision, which she says amounts to a tax increase on nonresidents.

Seeing that shots were being fired at him from the other side of the border, Governor Blunt relented partially and said that he'll support the provision's repeal in the 2008 legislative session. But it's really not clear that the Missouri legislature would relent at all. "What obligation do we have to Kansas people? Why would we want to give them a break on Missouri taxes?" one Missouri legislator said publicly. Kansas Rep. Kenny Wilk, chairman of the House Taxation Committee, is vowing to retaliate unless Missouri acts soon. He said, "Missouri just needs to decide whether they want to do this the hard way or the easy way. We will respond to make sure we recoup all "and plus a bit more... of what we're losing."

Fight Over Federal Gas Tax Brewing

According to the U.S. Department of Transportation, an eighth of bridges in America are "structurally deficient" which is the same designation that had been given to the Minnesota bridge over the Mississippi that collapsed on August 1. This designation does not necessarily mean that a bridge is unsafe, but the Department has stated that $65 billion could be spent immediately in cost-effective ways to address these deficiencies.

So it might seem reasonable that one effect of the August 1 tragedy would be to wake the nation up to pressing infrastructure needs. And in fact, Rep. James Oberstar (D-MN), chairman of the House Transportation and Infrastructure Committee, has introduced a bill to temporarily raise the federal gas tax by five cents to fund bridge repairs.

But anti-tax advocates are having none of it. A coalition of 56 right-wing organizations has sent a letter to the President and Congress opposing the proposed gas tax increase. It's not clear which side will win this argument. There is some support on the Republican side of the aisle for raising revenue to address the issue. Rep. Don Young (R-AK), the former chair of Oberstar's committee, caused a stir when he said that hundreds of bridges are "potential death traps," which would justify a tax increase to fund repairs.

Food Fights in State Legislatures?

Meanwhile, the situation on the state level doesn't look any less cantankerous. Minnesota Governor Tim Pawlenty and legislative leaders have not yet agreed on the parameters of a special session that weeks earlier seemed the likely result of the horrific tragedy. Recently Governor Pawlenty said on a local radio program "I'm not going to call a special session if there's going to be a food fight. Not everybody's on the same page." But if he fears a food fight, he's strangely ready to throw the first pie. The Governor said he may add property tax relief to the session's agenda, which would be oddly placed in a session that is supposed to address the bridge collapse. The session isn't likely to start until after Labor Day.

Other states are also taking transportation funding more seriously. Maryland Governor Martin O'Malley is expected to call for a gas tax increase that would adjust automatically for increases in the cost of construction. A thoughtful Baltimore Sun article describes the crisis that is created when gas taxes are low, but infrastructure costs are rising. There's no such thing as a free lunch, and certainly no such thing as a free bridge.

In many ways, Maryland's current debate over legalized gambling is depressingly familiar. Faced with a loophole-ridden and unfair tax system that cries out for progressive reform, some elected officials want to introduce thousands of slot machines as a politically palatable revenue-raising alternative. But Maryland offers an interesting, if bizarre, twist. Governor Martin O'Malley's administration is arguing that slot machines would make an excellent economic development tool for propping up the state's ailing horse-racing industry.

About the best one can say about the idea of providing tax subsidies for such a small and distinctly 19th-century industry is that it's less expensive than the more conventional smokestack-chasing other states continue to engage in. But Maryland isn't the first state that's had this idea -- and neighboring Delaware's experience has not exactly yielded dividends for that state's racing industry. And as an excellent Washington Post editorial explains, the environmental and economic policy goals the administration allegedly seeks to achieve with slots are a red herring.

The author of the O'Malley administration report that makes the economic development-based pitch for slots, Thomas Perez, claims that the introduction of slots in neighboring states has "revitalized the previously moribund horse racing industries in those states." Perez describes his report as "a fact finding tour of racetracks in Delaware, West Virginia and Pennsylvania." Perez's research techniques included counting the number of Maryland license plates in a West Virginia parking lot -- but his time might have been better spent just asking West Virginia's Racing Commission chairman, who sees " no correlation... inverse, in fact" between their 1994 introduction of slots at racetracks and the current health of that state's racing industry.

Louisiana is the number three film producing state in the nation, but behind the multi-million dollar films and flashy actors lies the dirty side of what can only be called the state's tax credit industry. As explained by an article in the magazine Fast Company, the FBI is investigating whether or not a company was improperly granted film production tax credits, which in Louisiana can be converted to cash by resale to another party that pays state taxes. One credit granted was worth more than the entire budget of the film produced. In 2002, when the state first developed these credits there wasn't even a system in place for the independent auditing of expenditures.

Louisiana's former Film Commissioner, Mark Smith, is currently under investigation and, in a perhaps predictable twist, now works for the movie industry. The lack of oversight is not the only reason to question the whole idea of tax credits for film production. Their impact on economic development is questionable, particularly since nearly all states now have some type of film tax credit.

Property tax reform continues to make headlines in several states. Some Indiana property taxpayers are revolting against what they perceive to be an unfair system. Recently more than 3,000 Hoosiers signed post cards addressed to their state policymakers urging them to fix the state's property tax mess permanently. In fact, a legislative commission began hearings last month and Governor Mitch Daniels' appointed blue ribbon commission started work this week. The problems are that taxes are not based on a homeowner's ability to pay and that assessments are executed poorly.

One thought-provoking solution described in the Indianapolis Star is to closely study the property in the state that is not being taxed. Indiana, like most states, exempts nonprofit organizations and religious institutions from paying the property tax. In Marion County alone millions of property tax dollars could be collected if religious institutions paid property taxes. Estimates show there is $2.7 billion in property that goes untaxed in Marion County. Should churches and nonprofit organizations pay property taxes? It's probably the case that no politician in Indiana would seriously propose to tax churches, but the fact that some are contemplating such a move could startle legislators enough to enact real reform.

Are Rebates the Answer?

Indianans will receive locally-funded property tax rebates this winter, but those rebates aren't being greeted with much enthusiasm. Many question the motives of the legislators who approved these rebates. The Post-Tribune writes that instead of offering credits that would be applied to a homeowner's property tax bill directly, "The General Assembly instead decided property owners should receive checks in the mail, so they can see what their elected officials did for them this year."

This week Montana homeowners can begin to apply for a $400 state-funded property tax rebate. The rebates were a highly contested issue in the legislative session as Republicans pushed for permanent property tax cuts instead of the one-time rebates supported by Governor Brian Schweitzer. The Montana rebates shed light on a problematic aspect of property tax rebates and circuit breakers. Because states don't often know how much property tax a homeowner paid, it becomes the homeowner's responsibility to know about and apply for the credit.

Itemized Deductions on State Tax Are No Better

Another misconceived approach to property tax reform is the itemized exemption for property taxes, which is allowed for most states' income taxes. One problem with this is that in the low- and middle-income families hit hardest by property taxes typically don't itemize. Also, income tax deductions are an "upside-down" tax break, since deductions are worth more to the wealthy taxpayers who typically pay higher income tax rates. If property taxes are problematic for some families, offering a deduction that is largest for the wealthiest and not available at all to many middle-income families is certainly not the solution.

In the current skirmish between Missouri and Kansas discussed above, some Missouri legislators have asked why people should be granted such an itemized deduction for property taxes paid in another state (which certainly angers those who pay Missouri income taxes because they work in Missouri, even though they live in and pay property taxes in Kansas). But the better question is why should Missouri allow an itemized deduction for property even if its located in Missouri. The deduction probably does little to help those who could actually use some help.

Given that the 2008 presidential race started two years before the election, one can be forgiven for failing to keep up on all the candidates' views on tax fairness. We have already been subjected to a dozen debates, a bewildering number of candidates and a variety of tax proposals. If you have not attentively followed the race so far, don't worry, because we've done the work for you. Here is a quick review of the ideas the 2008 presidential candidates have put forward so far.

Bad Ideas

Make Permanent the Bush Tax Cuts

The tax cuts enacted under President Bush are scheduled to expire at the end of 2010. The Republican candidates want to make them permanent, including John McCain, a candidate who actually voted against the biggest tax cut bills in 2001 and 2003. It seems that all the Democrats would let at least some parts of the Bush tax cuts expire. New Mexico Governor Bill Richardson has made noises indicating that he doesn't want to be associated with opposition to any sort of tax breaks. Even he seems to have indicated (in a debate on June 28) that any tax cut for the richest two percent "has to go," but he would replace those with new tax cuts for the middle-class or for certain companies that train and pay workers above the prevailing wage. (You can see whether those candidates who were in Congress during the Bush years voted for or against the Bush tax cuts by looking up their records in CTJ's Congressional Tax Report Card.)

Repeal the Estate Tax

The estate tax is a federal tax placed on substantial inheritances, much of which consist of capital gains that were never taxed. The Republican candidates would repeal it while most of the Democrats probably would not. Those Democrats who were in Congress at the time, Joe Biden, Hillary Clinton, Christopher Dodd, Dennis Kucinich, and Barack Obama, all voted against the Republican proposal to slash the estate tax last year. John Edwards would make permanent the estate tax rules that apply this year, which exempt an estate worth $4 million for a married couple. A report from CTJ put out early this year shows that the estate tax affected only the largest 0.8 percent of the estates of those who died in 2005 (the most recent year for which data are available).

National Sales Tax

A proposal that anti-tax radicals call a "Fair Tax" is basically a national sales tax that replaces all other federal taxes. It's misleadingly described as a federal sales tax of 23 percent, and former Arkansas Governor Mike Huckabee claimed at a May 15 debate that the transition to this tax would be revenue-neutral. CTJ studied the idea of a national sales tax in 2004 and found that in order to maintain current revenue levels, this sales tax would have to be around 50 percent. It is also very regressive. Low-income households would pay more for everything they buy, while the wealthy would hit the jackpot with tax-free capital gains, dividends and interest. We are fairly confident that this proposal will go nowhere when people realize that a house that costs, say, $200,000 would cost $300,000 under this plan.

Republican candidates Duncan Hunter, Tom Tancredo, Ron Paul, Mike Huckabee, and even John McCain have expressed support for the "Fair Tax" proposal. Former Senator Mike Gravel seems to be the only Democratic candidate in favor of this notion, and has claimed that a national sales tax would even solve global warming.

Flat Tax

Some Republicans favor a flat federal income tax rate as opposed to progressive rates. The idea is to tax all income at the same rate and its proponents misleadingly argue that this will lead to simplification. (Of course, in reality it's the various deductions and credits and other factors in the tax code, not progressive rates, that makes taxes complicated.) Mike Huckabee, Rudy Giuliani, and Sam Brownback are in favor of this plan, although Brownback has a plan to employ an optional flat tax system that will keep both progressive and flat tax rates available. Brownback's idea is perhaps the most bizarre because it's even more difficult to see how we could simplify anything by having two different tax systems.

But of course the bigger problem with the flat tax is that it's just blatantly, unapologetically, regressive. Currently the wealthy pay income taxes at higher rates than middle-income and low-income families. (This helps balance out the regressivity of other taxes, like federal payroll taxes and state sales taxes.) A flat tax has just one income tax rate, which will be lower than the rates paid now by the wealthy and probably higher than the rates paid now by the middle-class. If the switch to a flat income tax is revenue-neutral, that means poor people will pay more in income taxes and rich people will pay less. If everyone can pay less, well, then it can't be revenue-neutral and must involve massive cuts in government spending. We'll take a wild guess that any such spending cuts won't be at the expense of the wealthy.

Increase Revenue by Cutting Taxes

Giuliani has said that new revenue can be generated by cutting taxes, which will cause the economy to grow so much that tax revenues paid to the federal government will actually increase. Giuliani, remarkably, told an audience on August 5 that we can raise revenue to fix collapsing bridges not by increasing the federal gas tax but by lowering taxes. And Giuliani is not alone among Republicans who believe this fantasy. In the May 15^th Republican debate John McCain also claimed that the Bush tax cuts resulted in "dramatically increased revenues."

What's remarkable is that McCain explains his votes against the Bush tax cuts in 2001 and 2003 by saying that needed spending reductions were not being made at the time taxes were lowered. But if tax cuts raise revenues, why should anyone care whether or not spending is reduced? Why not just keep cutting taxes until the revenues grow enough to pay for whatever spending we want? It's hard to believe that McCain doesn't see how absurd this theory is. One could be forgiven for thinking that he is contorting his positions in order to win over the conservative voters in the Republican primaries.

There's wisdom in the saying, "If it sounds too good to be true, it probably is." This saying applies to the theory that tax cuts raise revenues. President Bush's own Treasury Department issued a report last year that refuted the claim that tax breaks spark so much economic growth that they pay for themselves.

Tax Breaks for Healthcare

Rudy Giuliani's healthcare plan consists of a tax deduction of up to $7,500 for individuals and $15,000 for families who purchase health insurance. But a tax deduction is worth the amount of the deduction times the top tax rate a family is subject to, so this offers more for the rich families in higher income brackets than middle-income or low-income families who actually need help obtaining health insurance. And low-income people who pay payroll taxes, but not federal income taxes, get no benefit, even though they're the group most likely to be without healthcare. John McCain has proposed a $3,000 credit for healthcare. A credit is more progressive than a deduction since its value doesn't depend on the income tax bracket a family is in, but if it's not refundable it still won't help those who pay federal payroll taxes but not federal income taxes.

But the more important problem is that we should not use the tax code to push families towards the individual health insurance market (the market for coverage that is not employer-based). Individual health coverage is usually much more expensive, has less generous benefits, and may be more likely to involve high deductibles that discourage people from getting care they actually need.

Eliminate the IRS

Mike Huckabee and Ron Paul, two Republican candidates, are both in favor of abolishing the Internal Revenue Service. It's not entirely clear who would administer the national sales tax these candidates support if there was no IRS.

Better Ideas

Repeal Bush Tax Cuts to Fund Other Priorities

While probably all the Democratic candidates would let at least some parts of the Bush tax cuts expire at the end of 2010, some have expressed interest in repealing certain parts of them before that time and using the revenue for other priorities like health care. Barack Obama and John Edwards both favor some version of this maneuver to fund their healthcare plans, with Obama repealing some tax breaks for families with incomes of $250,000 or more, and Edwards doing the same for families at $200,000 or more.

No reasonable person could disagree in principle with the idea of rolling back some of the tax cuts. By substantially cutting taxes, mostly for the rich, President Bush has managed to add $2.4 trillion to the national debt already, despite facing a small surplus when he came to office. By 2010, most of the benefits of those tax breaks will go to the richest 1 percent under the administration's budget plans.

However, repealing the Bush tax cuts does not create much new revenue compared to the budget baseline that Congress already uses, which assumes the Bush tax cuts will be allowed to expire at the end of 2010.

Obama has not specified how his healthcare program will be funded past the first year. Edwards, on the other hand, claims that his healthcare plan with be funded permanently through the repeal of the 2001 tax cuts for those with income over $200,000. The cost of extending the tax cuts for those with incomes below $200,000 would reduce revenues, a cost that he has not yet accounted for. Although his heart is in the right place when it comes to healthcare, his plan could be improved with additional provisions to raise needed revenue.

But at least these candidates are facing the fact that taxes must be raised. Clinton is still "wrestling" with whether or not to increase taxes and she and Richardson (and to an extent, Obama) both seem to think that they can pay for their plans partly by eliminating inefficiencies in the healthcare system.

Stop Taxing Work More than Wealth

One extremely good idea proposed by John Edwards is to end the tax subsidy for people who have capital gains. One signature tax cut enacted by President Bush reduced the tax rate on capital gains from 20 percent to 15 percent and made dividends, which had been taxed as ordinary income, also taxed at 15 percent. At the end of 2010, that break will expire if Congress doesn't extend it and dividends will be taxed as ordinary income and capital gains will be taxed at 20 percent again.

But even the 20 percent tax rate is a break for the wealthy investors whose other income is mostly taxed at the highest ordinary income rate (currently 35 percent). CTJ recently found that the cost of the current tax treatment of capital gains and dividends was about $92 billion in 2005 alone and three fourths of that went to the richest 0.6 percent. Edwards has proposed taxing capital gains at 28 percent, which is certainly a huge step in the right direction.

Unfortunately, the Republican candidates would like to make permanent the tax breaks for capital gains and dividends and those who support a flat tax or national sales tax generally assume capital gains and dividends won't be taxed at all. Mitt Romney has the strange idea of making interest, capital gains and dividends tax-free for "middle-income" people. It's unclear how he defines middle-income given the CTJ data showing that capital gains and dividends mostly benefit the wealthy.

Close the Loophole for Carried Interest

The only thing more senseless than a huge capital gains tax break is allowing it for income that isn't a capital gain. Private equity fund managers, who can earn hundreds of millions of dollars, use a tax loophole to have part of their compensation that they call "carried interest" taxed as capital gains, and thus at the 15 percent rate instead of the 35 percent rate that applies to their ordinary income. Various arguments are being put forth by the industry to support this tax break, most of which are easily refuted. The bottom line is that they are getting paid for the work they do, just like the rest of us, and yet they pay a lower tax rate on the hundreds of millions they earn.

Hillary Clinton, Barack Obama, and John Edwards have all come out in favor of legislation proposed by Congressman Sander Levin (D-MI) to close this loophole. Chris Dodd has expressed some misgivings about the legislation but has not taken a position yet.

Taxing Carbon Emissions

Democratic candidate Chris Dodd has come out for a corporate carbon tax as a way to reduce energy consumption and reduce emissions of carbon dioxide into the atmosphere. Clinton, Edwards and Obama are for a cap and trade program, which could have the same effect. A cap and trade program would involve a cap on the total amount of carbon that can be emitted and would allow companies to buy and sell the rights to emit carbon.

The only fear among some progressives is that under either a carbon tax or a cap and trade program, the added cost would likely be passed on to consumers in the form of higher prices that disproportionately burden low-income families. An increase in the cost of gasoline, for example, might have only a minuscule effect on the total budget of wealthy family, who would anyway be more able to rearrange their life to reduce driving. Eventually our concerns about the environment may have to be balanced against our concerns about the incidence of the cost of such policy changes. The outcome of that debate will hinge on what can be done to lower the costs for those who can least afford to pay them.

It should be noted that several candidates have expressed interest in ending tax subsidies for oil companies. During the debates, Biden, Edwards, and Clinton all expressed interest in taking this step in some form or another. These tax subsidies are described in CTJ's paper calling for their repeal and they make little sense at a time when oil companies are making record profits while the public wants to reduce and reverse global warming.

North Carolina took a large step forward towards tax fairness this week when both houses passed a new budget that includes a state Earned Income Tax Credit, or EITC.North Carolina now joins 20 other states that offer an EITC.These credits receive broad bipartisan support in so many states because of their proven track record of success.The EITC works by rewarding work, making sure that working low-income families aren't taxed further into poverty.Since the measure is targeted only at these families, it provides much more benefit per dollar of state revenue than almost any other anti-poverty program.

Despite all this, however, some legislators in Michigan want to delay the introduction of that state's EITC.Last year, the state passed an EITC for the first time.Now, proponents of delaying the EITC argue that, given the state's current business and fiscal problems, the government simply can't afford the tax break.Of course, many of these senators are the same ones who have been advocating against any new business taxes in the state to replace revenue lost with the repeal of the Single Business Tax.It's true that the state is not in good fiscal condition, but during economic downturns anti-poverty measures become more important, not less.Michigan voters should urge their lawmakers to keep their promise to the working poor.For more information on state EITCs, try this helpful website.For more information on how EITCs work, read this ITEP policy brief.

First, the good news. According to the New York Times, officials in the Empire State this week issued warnings to about a third of the roughly 10,000 businesses that participate in the state's enterprise zone program for failing to make good on job creation or investment commitments. The enterprise zone program offers a wide range of tax breaks - including sales tax refunds, property tax credits, and investment tax credits - to businesses in hopes that they will boost employment and investment in the state.

As the Times points out, the program has been around for twenty years - and has cost New York taxpayers $3 billion since 2000 - yet these warnings mark the first real effort to enforce the commitments businesses make to receive those tax breaks. For example, Wal-Mart and Lowes, two of the largest companies cited, pledged to invest $45 million and $9 million respectively, but together have put up only about $4 million. New York has the power to recoup tax breaks from businesses that fail to meet their commitments, but won't attempt to do so until program participants have filed their 2006 reports. Still, given the prevalence of these types of programs around the country - programs that are likely yielding similarly poor results - New York's action will hopefully spur other states or municipalities to do the same.

Now, the Bad News

Unfortunately, New York lawmakers haven't exactly been paying attention to the poor track record of the state's enterprise zones and how little the public got in return for the investment of tax dollars in this fashion. Otherwise, when the Yankees came to them looking for help in building a new stadium, they probably wouldn't have given them over $660 million in subsidies. (Just call it "The House that Giuliani Built.") The latest report from Good Jobs New York - entitled Insider Baseball - has all the details.

The budget clock is also ticking in Wisconsin as the Governor and the University of Wisconsin chancellors have both denounced the budget approved by the Assembly, saying that the budget cuts included would increase class sizes in universities and decrease class offerings. A conference committee is currently meeting to reconcile the Assembly budget with the Senate's which included tax increases and a health care plan. Senator Neal Kedzie says the state "could be in for a very long and bumpy ride."

The federal government's primary approach to helping the middle-class access healthcare is through the tax code. Most importantly, employers can deduct funds used to provide health insurance to employees, who generally exclude the benefits from income. This is not the most rational or comprehensive approach but has helped middle-class people obtain health insurance.

The deduction for employer-provided health insurance is projected by the Congressional Joint Committee on Taxation to cost the federal government $534 billion from 2006 through 2010. Deductions for health insurance premiums available to the self-employed will cost another $22.6 billion between 2006 and 2010. While many middle-class families have obtained health insurance through this route, there are many ways in which it may not be an efficient or equitable policy. For one thing, the tax benefit is greatest for those in the highest income brackets and lowest for those in the lowest income brackets, making it an undeniably regressive policy. Also, it does nothing for the estimated 45 million Americans lacking health insurance. The rising high cost of health care has caused many employers, particularly small businesses, to decide to not provide health insurance to their workers, despite the tax break that would benefit the employees.

White House Proposal Could Make Matters Worse

President Bush argues that his health care tax proposal would remedy this situation. He would eliminate the deduction for employer-provided health insurance and instead offer a deduction for health insurance purchased on the individual market (for the purchase of coverage that is not employer-provided) The reality is that his plan could weaken employer-provided health insurance without ensuring that an adequate alternative takes its place. The President's proposal would basically make the tax code biased towards individually purchased health care and even high-deductible health care. There would no longer be any tax incentive for employers to provide health care, so many could "cash out" the health care benefits they currently offer, meaning some employees would receive additional monetary compensation instead of health insurance. The problem is that these employees would have to turn to the individual health insurance market, where plans offered are much more expensive and less generous.

A recent summary of research from the Center on Budget and Policy Priorities notes studies showing that most low-income people trying to obtain coverage on the individual health insurance market have difficulty and over a quarter are denied coverage or are charged much more because of a pre-existing condition. The types of coverage available on the individual market often result in greater out-of-pocket expenses that will cause some low-income people to forego necessary health treatments.

Public Programs Like SCHIP More Efficient than Tax Subsidies - Yet Face Presidential Veto

The President has claimed his proposal would be more efficient than the House and Senate bills to expand the State Children's Health Insurance Program (SCHIP), which the two chambers approved this week. The White House argues that expanding SCHIP will "crowd out" private insurance. The Congressional Budget Office has found that two thirds of the children receiving health care under either bill would be those who would otherwise not have health insurance. Health care economist Jonathan Gruber has pointed out that the "crowd-out" effect of SCHIP is probably the lowest of any health care proposal, and that the majority of benefits from the President's health care proposals go to those who would have health insurance anyway.

On August 2, the Senate passed its SCHIP bill, which increases the federal cigarette tax by 61 cents to one dollar per pack to offset the costs. The House passed its broader bill, which increases the federal cigarette tax by 45 cents per pack and includes other revenue-raising provisions, on August 1. The President has indicated that he would veto either version.

Little progress has been made in the Illinois budget standoff. In fact, Governor Rod Blagojevich pleaded with state employees to continue working even though the state's one-month temporary budget extension ended on July 31. State Comptroller Dan Hynes says that the state must have some sort of budget by August 8 - when the state is scheduled to make school aid payments. In the meantime, legislative leaders have rejected the Governor's proposal for another one-month budget extension. Powerful House Speaker Michael Madigan has said, "I think we're close." Looking through our crystal ball we predict that Illinoisans can expect a modest budget that does little to improve education, expand health care coverage, or improve the state's tax structure.

In California, the state Senate fell one vote shy Wednesday of adopting a budget and may not resume deliberations until August 20^th. Republicans maintain that some $700 billion in spending cuts are necessary to balance the budget, yet continue to back a tax package that, by the estimate of Senate President Don Perata, could cost the state $600 million to $1 billion annually. Among the principal elements of that tax package are $100 million in tax credits for movie and television production companies, $175 million in credits for research and development, and changes to the state's corporate income tax apportionment formula.

As the Sacramento Bee points out, this delay will likely force the state to suspend Medi-Cal payments to the 500 hospitals and 11,000 nursing homes and other facilities that serve the 6.8 million Californians who participate in the program. It may lead to a similar stoppage in funding for subsidized day care across the state, leaving 250,000 low-income families without caregivers for their children while they are at work. Interested readers can visit the California Budget Project's website for the latest on the showdown.