On Friday, January 23, House Republican Leader John Boehner (OH) and Republican Whip Eric Cantor (VA) presented their "Economic Recovery Plan" to President Obama. The Republican plan is based on income tax cuts for relatively well-off families and business tax cuts. As a brand new report from Citizens for Tax Justice explains, it is unlikely to provide the needed boost to consumption that economists believe can come from either direct government spending or putting money in the hands of working class people who are likely to spend it quickly.

Less Than a Quarter of the House GOP's Tax Rate Reduction Proposal Would Go to the Poorest 60 Percent of Taxpayers

The House GOP plan proposes to reduce the two lowest individual income tax rates from 15% to 10% and from 10% to 5%. To get the maximum tax cut of about $3,400 from this rate reduction, taxpayers would have to have enough taxable income to reach the start of the third income tax bracket. For example, a married couple with two children would typically need to earn more than $100,000. That's considerably more than most people earn. In fact, only one in five of all taxpayers has enough income to reach the third income tax bracket and receive the full benefit of the proposed tax rate reduction.

On the other hand, the plan proposed by Democrats in the House of Representatives (which is scheduled to come to a floor vote today), delivers tax cuts to working families who don't pay federal income tax but pay a lot in payroll taxes. For example, the "Making Work Pay Credit" would give married couples with $8,100 or more in wages the full $1,000 credit provided in the bill. In order to have an equivalent benefit from the Republican rate reduction, a married couple (with two children) would have to have $46,000 of gross income. The House Democrats' plan would also expand the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) which are smaller tax breaks in terms of revenue but are even more targeted to working families.

Read the new CTJ report.

Another provision in the package would rescind IRS Notice 2008-83, also called the "Wells Fargo ruling" after its largest beneficiary. In October, the IRS issued this two-page notice declaring, with no authorization from Congress, that banks could ignore a section of the tax code enacted under President Reagan to prevent abusive tax shelters. In December, over a hundred organizations signed a letter to the House and Senate asking them to rescind the Wells Fargo ruling.

An online six-minute video from the American News Project (click here if you need the YouTube version) explains how Treasury officials under former President George W. Bush issued the Wells Fargo ruling with no legal authority and gave banks a hand-out beyond their lobbyists' wildest dreams. The video features interviews with CTJ director Robert McIntyre and Senator Bernie Sanders, the sponsor of the Senate bill to rescind the Wells Fargo ruling, and gives props to the organizations that signed the letter urging Congress to enact his legislation.

Towards the end of the video Senator Sanders questions whether or not the ruling Democratic party will be courageous enough to stand up to the lobbyists for powerful financial interests. Well, that question will be answered soon, because the House stimulus bill to be voted on today includes the proposal that was introduced in the House last year to rescind the Wells Fargo ruling -- and this is one more reason to support the stimulus bill. The Senate version has also recently been amended in the Finance Committee to include a provision rescinding the Wells Fargo ruling. Senator Sanders has been willing to stand up against unjust giveaways like this even when doing so is not popular on either side of the aisle. Tax fairness advocates need to work to make sure his courage and hard work pays off by supporting this reform.

The deadline for organizations to join the letter being distributed by the Coalition on Human Needs urging Congress to make the Child Tax Credit (CTC) fully accessible to low-income working families has been extended to Monday, February 2. If you are authorized to sign on behalf of an organization, click here. If you are not authorized to sign on behalf on an organization but you still want to support this change, click here to send an email to your members of Congress asking for their support.

The House stimulus bill would make the existing $1,000 Child Tax Credit (CTC) more accessible to low-income families by making the refundable portion of the credit equal to 15 percent of a family's earnings (up to the existing maximum credit of $1,000 per child). Under current law, the refundable portion is limited to 15 percent of earnings above $12,550 in 2009 (this threshold is indexed for inflation). That means someone with income below $12,550 is actually too poor to benefit from the CTC. The Senate version would improve the CTC, but not nearly as much because it would lower the earnings threshold to $6,000.

Families who work and pay federal payroll taxes but do not earn enough to owe federal income taxes usually do not benefit from an income tax cut unless it takes the form of a refundable credit. The limitation on refundability of the CTC has resulted in many of the poorest families being excluded from its benefits. Equally important is the fact that expanding refundable tax credits is more likely to be effective economic stimulus than many other tax cuts that are being proposed according to Mark Zandi of Moody's Economy.com and other economists. This is because it puts money in the hands of people who are likely to spend it quickly, giving our economy the boost in demand for goods and services that economists believe will mitigate the recession.

A new report from Citizens for Tax Justice compares the tax cuts proposed as economic stimulus by the House Democrats to the tax cuts proposed by their Republican counterparts. The report includes both national and state-by-state figures showing the average tax cut and the share of total tax cuts that would be received by taxpayers in various income groups under the different proposals.

The report finds that the Democrats' proposal (H.R. 598) includes some tax cuts that are far more targeted to low- and middle-income people than any of the tax cuts included in the Republican alternatives. This is largely because H.R. 598 includes a new refundable credit (the Making Work Pay Credit) and expands two others (the Earned Income Tax Credit and the Child Tax Credit) while the Republican alternatives do not. Working people who pay federal payroll taxes but do not earn enough to owe federal income taxes will only benefit from an income tax cut if it takes the form of a refundable credit. Many economists have argued that any effective stimulus policy would have to boost demand for goods and services by causing immediate spending -- and one way to do that is to put money in the hands of low- and middle-income people who are more likely than wealthy taxpayers to spend it quickly.

The House of Representatives is expected to vote this week on the Democratic proposal, H.R. 598. Many of the provisions of this bill have wide support from progressive advocates. The Coalition on Human Needs is distributing a sign-on letter for organizations in support of the expansion in the Child Tax Credit. If you are authorized to sign on behalf on an organization in support of this provision, click here for more information.

Read the CTJ Report

The New York Times reported earlier this week that the Empire State may use tax increases on the very wealthiest residents to help close a budget gap of roughly $15 billion. This is common sense, particularly since, as the Times notes, "Over the last 30 years, the trend has been to pare back income tax rates on the rich, federally and in the state. Since the mid-1970s, the state has cut its top tax rate from 15.375 percent to 6.85 percent." For more on New York's fiscal condition and ways to improve it, see this presentation by the Fiscal Policy Institute.

Progressive tax reform may also be on the horizon for Illinois. Much hope accompanies newly elected Illinois Senate President John Cullerton. Cullerton replaces retiring Senate President Emil Jones who often stood with Governor Rod Blagojevich against constructive tax changes to solve Illinois' budget woes. Senator Cullerton recently hinted that needed tax hikes may be in the state's future, alluding to the fact that all options to solve the state's infamous budget shortfall are on the table.

In a speech to the Senate Cullerton said, "In recent years, we have seen all the gimmicks and listened to all the quick-fix promises. But, we know they won't solve our problems. Instead we need a cooperative partnership -- and that requires sacrifice." Let's hope Cullerton can work to solve the state's budget with progressive solutions like increasing reliance on income taxes and lowering the state's dependence on property taxes instead of the litany of solutions floated in recent years (like increased borrowing and dependence on gambling) to solve the state's fiscal woes.

Even in the best circumstances, Massachusettsis likely to face a budget deficit of some $3.1 billion in the coming fiscal year, according to a new report issued this week by the Massachusetts Budget and Policy Center (MBPC). The report demonstrates that the expected shortfall is not simply the result of the current recession, but rather, is in part the extension of ongoing structural problems, with permanent revenues failing to meet necessary expenditures. A companion report by the MBPC explains that some of those long-term structural problems can be traced to affirmative changes in tax policy, such as reducing the overall income tax rate from 5.95 percent to 5.3 percent and dropping the tax rate on dividend and interest income from 12 percent to 5.3 percent. Other problems stem from failure to modernize the state's sales tax -- for instance, by broadening its base to include services. With Governor Deval Patrick set to announce his plans to cut spending in the current fiscal year by $1.1 billion, even before tackling the looming fiscal 2010 shortfall, the time has clearly come to reconsider the tax cuts that are at the root of Massachusetts fiscal woes.

At the federal level, one of the key controversies in the stimulus debate has been over how much of the stimulus should come in the form of tax cuts. Fortunately, a consensus seems to have formed that tax cuts should play a less important role than spending increases (though there are still a variety of tax cuts in the federal proposal that we could certainly do without). In Minnesota, however, the Governor recently made a number of proposals in direct contradiction to this sentiment. He proposes to cut business taxes with the alleged goal of reducing unemployment in the state.

Among the Governor's proposals:
- Slashing the tax rate on business income in half
- Allowing companies to deduct the entire cost of their equipment purchases up-front, rather than doing so gradually over time as the equipment depreciates
- A variety of tax credits for business investors within the state
- A capital gains exemption for those who invest in small business within Minnesota

The Minnesota Budget Project quickly issued some sharp criticisms of the Governor's stimulus plan. Those criticisms rely heavily on the well-publicized figures produced by Mark Zandi demonstrating the relative effectiveness of various kinds of stimulus measures. Unsurprisingly, business tax cuts ranked among the least effective stimulus options available.

Unfortunately, however, the Governor is not alone in attempting to chart a course down this ill-conceived path. House Republicans have recently begun touting what is perhaps an even more radical measure: a five year suspension of the corporate income tax for any company that relocates to Minnesota, or expands its business within the state.

As the Budget Project points out, though, Minnesota can expect to have even less success with business tax cuts than the federal government could, since the requirement that the state balance its budget (coupled with the already dire budgetary situation in Minnesota) means that every dollar in business tax revenue lost through these cuts will result in economically harmful spending cuts.

Ultimately, stimulus is a matter best left up to the federal government, which can borrow to pay for temporary injections into the economy. The states, including Minnesota, would be much better off focusing their energies on maintaining the valuable state services that Minnesotans are depending on to weather the current economic storm.

At the state level, the usual response to recommendations that taxes be increased to preserve vital state services has generally been: "Now is not the time". The most notable exception to this trend so far has been with the cigarette tax, as we've explained before. Increasingly, however, policymakers appear to be coming around to the idea of boosting gas tax rates in order to raise the revenue needed to maintain our nation's infrastructure. Given that most state gas taxes haven't been increased for quite a few years, and that during that time inflation has significantly eroded the value of most gas tax rates, our only response can be, "It's about time."

In Maryland, for example, the Senate President recently expressed an interest in raising the gas tax, urging that "there's got to be an increase in the transportation trust fund somewhere, and there's got to be a way we can find people with the political will to make it happen". Numerous governors have echoed this call as of late, most recently in Massachusetts, and Idaho.

In Idaho, especially, the Governor was able to hit the nail on the head with his observation that, "[we last raised] the fuel tax... 13 years ago. And now here we are trying to accomplish 2009 goals with 1996 dollars. Everyone in this room or listening to me throughout Idaho today -- everyone who has a household budget or runs a business -- knows that just doesn't work".

In response to this problem, Idaho Governor "Butch" Otter has recommended bumping the gas tax upward by 2 cents in each of the next 5 years. Addressing the root of the problem even more directly, Wisconsin Governor Jim Doyle has proposed indexing the gas tax rate to inflation -- a practice that had existed in Wisconsin up until 2006. Maine and Florida continue to index their gas tax rates today, with very favorable results in terms of providing each state with a somewhat more adequate and sustainable source of transportation revenue.

Importantly, the federal gas tax is not indexed to inflation, meaning that the Federal Highway Trust Fund is suffering from many of the same problems we see plaguing the states mentioned above. The federal gas tax has not been increased in over 15 years. President Obama's new Energy Secretary, Steven Chu, has previously gone on the record as supporting raising the gasoline tax. The views of Transportation Secretary Ray LaHood are not yet clear. What is clear, however, is that something will have to be done at the federal, as well as the state level, if gas tax revenues are to be restored to their previous purchasing power.

Of course, the gas tax is not perfect. Aside from the long-term issues arising out of improved fuel efficiency (which we need to begin planning for now), the regressivity of the tax is very worrisome, especially in these difficult times. Fortunately, low-income gas tax credits, as we've advocated on multiple occasions, are very capable of remedying this shortcoming.

Earlier this month, the Progressive Leadership Alliance of Nevada (PLAN) released a report called Fool's Gold The Silver State's Tax Structure: Inadequate and Inequitable. The report rightly reminds readers that, "Nevada doesn't have a spending problem. It has an income problem. Its tax system is structurally unsound. The foundation of our state is broken and cannot support what our citizens need."

Nevada's unique tax system has no income tax and relies heavily (too heavily) on regressive sales tax revenue. Couple this with an enormous $1.5 billion shortfall and it's clear that policymakers and activists should pay special attention to this report, which proposes a suite of revenue raising options including: a profits based business tax, closing costly deductions, an unearned income tax, and a traditional earned income tax.

On Thursday, House Ways and Means Committee Chairman Charlie Rangel (D-NY) released the outlines of a $275 billion tax cut package to be included with a larger stimulus bill that Democratic leaders hope to enact by President's Day. In many ways it is an improvement over the proposal initially floated by the Obama transition team, but it also keeps many of Obama's ill-advised tax cuts for business that will have little or no stimulative effect on the economy.

Most economists believe that the current economic downturn is largely the result of a collapse in demand for goods and services, and that direct government spending can boost demand and prevent the recession from becoming more severe and destructive. Tax cuts are less effective because it's difficult to ensure that they will result in the sort of immediate spending needed to boost demand quickly. But if tax cuts can at least be targeted to those people who are likely to spend the extra money right away (like low-income families), then they could have a decent chance of accomplishing the goal of stimulating the economy.

More Progressive Tax Cuts for Families

Last week, Citizens for Tax Justice released a report that showed how some of Obama's proposed tax cuts would be targeted to those who would likely spend the money right away (thus immediately pumping the money into the economy) while others were more likely to be ineffective giveaways to business. Obama's proposed Making Work Pay Credit would reach people at lower income levels, but it would not be particularly targeted towards the bottom half of the income ladder. (The poorest 60 percent of taxpayers would only get 48 percent of the benefits while the richest 20 percent would get 25 percent of the benefits.) A proposal to increase the availability of the refundable portion of the $1,000 Child Tax Credit looked more promising because nearly all of the benefits would go to the poorest 60 percent.

The Ways and Means Committee proposal improves on Obama's tax cuts for individuals. For example, the improvement in the Child Tax Credit (CTC) would be even more progressive. Under current law, some working families who pay federal payroll taxes but who do not earn enough to owe federal income taxes are actually too poor to benefit from the CTC. That's because people with no income tax liability do not benefit from a tax credit unless it is refundable, and the refundable portion of the CTC is limited to 15 percent of earnings above $12,550 in 2009. The Ways and Means Committee proposal would remove that earnings threshold so that the refundable portion of the CTC is equal to 15 percent of all earnings (with the maximum credit limit unchanged at $1,000 per child).

The refundable Making Work Pay Credit, which Obama proposed during his campaign and which would generally offer working people $500 (or $1,000 for a couple if both spouses work), is also included. A new addition to the package is an improvement in the Earned Income Tax Credit (EITC). It is unclear at this time how extensive the change in the EITC will be. (It may be similar to the EITC expansion Obama proposed during his campaign.) But it's quite clear that expanding the EITC is a promising way to put money in the hands of families who have probably cut back on purchasing all sorts of needed goods and services and who will therefore spend that money quickly.

Tax Cuts for Business: One Bad Idea Dropped, Several Others Included

The Ways and Means proposal does not include Obama's proposed refundable $3,000 tax credit for businesses that create jobs, which was roundly criticized as unworkable. Democrats in the House and Senate are said to have been doubtful that the credit could possibly be implemented in a way that did not result in a huge tax giveaway for companies that were merely hiring people they would hire anyway.

Unfortunately, many other business tax cuts in Obama's proposal that CTJ and others criticized are included in the Ways and Means package. Earlier attempts at using bonus depreciation to boost the economy have proven to be ineffective, but lawmakers apparently insist on this giveaway to business-owners. A 2006 Federal Reserve study reached a similar conclusion to our own findings, finding that previous versions of this tax break had "only a very limited impact... on investment spending, if any." Worse, the proposal would allow businesses to use their losses to reduce taxes they already paid going back five years (the current limit is two years). As Dean Baker explains, this tax cut must have even less stimulative effect than other business tax cuts because it does nothing to change the incentives of business-owners or investors going forward. The net operating loss carryback provision simply hands money to businesses without requiring any sort of investment (or anything) in return.

House Democratic Proposal Would Rescind the Infamous "Wells Fargo Ruling"

Another provision in the package would reverse IRS Notice 2008-83, also called the "Wells Fargo ruling" after its largest beneficiary. In October, the IRS issued this two-page notice declaring, with no authorization from Congress, that banks could ignore a section of the tax code enacted under President Reagan to prevent abusive tax shelters. In December, over a hundred organizations signed a letter to the House and Senate asking them to rescind the Wells Fargo ruling. That call is now being answered.

The Ways and Means package contains provisions addressing many other needs, including a partially refundable credit for higher education, increased availability of bonds for state and local government, energy tax incentives, child support funding and many others.

On January 9th, Congressman Earl Pomeroy (D-ND) introduced a bill (H.R. 436) to retain the estate tax with a per-spouse exemption of $3.5 million, essentially freezing in place the estate tax rules in effect this year. The Obama campaign has favored a similar approach to dealing with the estate tax.

Under the first tax cut enacted by President Bush in 2001, the estate tax is being phased out gradually. Under current law, if a wealthy person dies in 2009, the first $3.5 million of their estate is not subject to the tax. That exemption was scheduled to increase gradually under the 2001 law, until 2010 when the estate tax is scheduled to disappear completely. Like almost all of the Bush tax cuts, these rules expire at the end of 2010, meaning that the estate tax will return in 2011 and the pre-Bush rules will apply (including a $1 million per-spouse exemption). Congressman Pomeroy's bill would therefore prevent the estate tax from disappearing in 2010, but would constitute a significant tax cut for millionaires in years after that.

In December, Citizens for Tax Justice issued a report using the latest estate tax data from the IRS showing why the Obama/Pomeroy approach would be a huge and unnecessary tax cut for extremely wealthy families. The report found that only 0.7 percent of deaths that occurred in the United States in 2006 resulted in estate tax liability. The per-spouse exemption that year was only $2 million, which means that the estate tax will affect even fewer families with the $3.5 million per-spouse exemption in place.

Rep. Pomeroy's bill would also repeal new "carryover basis" rules scheduled to be effective next year. Under current law, when you inherit property from an estate, the "basis" of that asset for income tax purposes is stepped up to its fair market value (FMV) on the date of death. When the estate tax is fully repealed in 2010, the stepped-up basis rules are also scheduled to be repealed. The new general rule will be that the basis of the property will carry over from the decedent. (An exception to this rule allows $1.3 million of property to be stepped up to FMV, and an additional $3 million is stepped up if the property is left to a surviving spouse.) H.R. 436 would repeal the new rules prior to their effective date.

It's true that the new carryover basis rules scheduled to come into effect in 2010 under current law are difficult for taxpayers and administrators. How can we figure out what Aunt Sarah paid for her G.E. stock that she's had for at least 30 years when we don't even know when she bought it (or if she received it as a gift or inheritance)? And what if she's been reinvesting dividends all these years (which increase the basis)? A similar rule was enacted by the Tax Reform Act of 1976, but was repealed before its effective date in 1980 because of the outcry from taxpayers and practitioners about the impossibility of complying with the statute.

The phase-out of the federal estate tax also continues to hurt state treasuries. Most states base their state inheritance tax on the federal system and many have lost significant revenues because of the federal changes, including the loss of the credit for state estate taxes. In his budget proposal last week, Gov. Baldacci of Maine included changes to Maine law that would impose a Maine estate tax computed under the pre-2001 federal and state rules. Gov. Sibelius of Kansas has proposed delaying the state's scheduled elimination of estate taxes.

For state lawmakers facing a balanced-budget requirement, the problem of revenue volatility can be a serious one. Since one of the more important goals states pursue is to provide a consistent level of services each year, it only makes sense that a correspondingly consistent level of revenue be available. In California, the Governor, together with state legislators, has appointed a commission specifically tasked with providing recommendations on how to reduce volatility. Minnesota recently formed one such commission as well, which actually released its findings just this week. Some of the commission's findings include (as summarized by the Minnesota Budget Project):

- "Shifting to more stable revenue sources would lead to a more regressive system with slower growth rates. Instead of attempting to rebalance the tax system, they recommend establishing a much larger budget reserve ($2.1 billion for now) to help carry the state through economic downturns."
- "Using one-time surpluses strictly for one-time purposes (like rebuilding the reserves)"
- "Avoiding permanent tax cuts or spending increases unless reserves are filled and shifts have been bought back."
- Ensuring "that policymakers and the public have access to more information to improve the decision-making process. That includes releasing a demographic forecast every biennium and adding inflation back to the expenditure side of the state's budget forecasts."

As these recommendations should make clear, revenue volatility is only a problem if it is not planned for in the budget. Restructuring an entire tax system just to smooth out revenue collections is an extreme example of trying to 'throw the baby out with the bath water'. In fact, as we've pointed out in our policy brief on progressive income taxation, restructuring a tax system with this aim in mind is likely to create even more revenue problems in the long-run.

But while there's much to be excited about in the wisdom behind the Minnesota Commission's recommendations, those ideas have yet to take root everywhere. In Indiana, for example, just this week the Governor called for automatically refunding any tax collections above some pre-determined level, during good economic times. Such a change would directly restrict the flexibility policymakers need to plan for rough budgetary times when things are going well.

In 2005, the Ohio Legislature adopted, and then-Governor Taft signed into law, House Bill 66, a sweeping change to the personal income tax that reduced tax rates "across the board" by twenty-one percent over five years. The cuts were passed with the promise that they would improve economic conditions for Ohioans and make the state more competitive both nationally and internationally. How did the tax cuts perform? Did Ohio see even miniscule growth in key economic indicators?

According to Policy Matters Ohio the answer is simply no.

In a report released this week, Policy Matters Ohio writes, "The results are very clear. Even before the current economic downturn, Ohio was not keeping pace with the nation. Key economic trends continued to go in the wrong direction after the tax overhaul. The report finds unmistakable evidence that the state's relative economic decline accelerated since H.B. 66 was passed." In terms of important economic indicators including economic output, productivity, manufacturing and income, Ohioans haven't enjoyed any of the promises that tax cuts were said to provide.

The enormous tax cuts have already taken millions of dollars away from government's ability to do its work and the state has little to show for its efforts. In fact, according to the report, the state joins the majority of others in facing an enormous budget shortfall of between $4.7 billion and $7.3 billion for the next budget biennium and the gap between services available and those needed is actually widening.

Despite the drastic mistake policymakers made when passing these cuts, it's not too late to undo the mess. Governor Strickland and legislators would be wise to follow the recommendations of Policy Matters Ohio and revise the current income tax structure, introduce an EITC and shore up the state's business taxes.

President-elect Obama and Congressional leaders are discussing plans for economic stimulus legislation to be enacted in the coming weeks or months. The two-year package being discussed is said to cost around $775 billion and a surprisingly large $300 billion of that would go towards tax cuts.

A new report from Citizens for Tax Justice examines some of the major tax cuts that are being discussed as possible components of the stimulus proposal. Tax cuts are generally less effective in stimulating demand than direct government outlays. But tax cuts targeted to the people who are most likely to immediately spend any money they receive, namely low- and middle-income people, are more effective than upper-income tax reductions.

The report explains that Obama's "Making Work Pay Credit," (a refundable $500 credit for each working spouse) could be sufficiently targeted if improved from its current form. The report also finds that improving access to the Child Tax Credit for poor families, which has also been discussed as a possible component of the stimulus package, would be much more effectively targeted.

The report also discusses why business tax breaks that are being considered as part of the package are unlikely to help stimulate the economy and mitigate the current recession.

Read the report.

Senate Minority Leader Mitch McConnell (R-KY) has recently said that he does not believe that the stimulus proposal put forward by President-elect Barack Obama is sufficiently focused on tax cuts. While Obama's proposal reportedly does include as much as $300 billion in tax cuts, Senator McConnell argues that we need even more tax cuts, in particular for what he calls "the middle class." In pursuit of this alleged goal, McConnell proposes temporarily cutting the 25 percent income tax rate to 15 percent.

A new report from Citizens for Tax Justice explains that there are at least three severe problems with this plan:

1. By any reasonable measure, McConnell's proposed tax cut is not targeted to middle-income people. Instead, three-quarters of the tax cut would go to the best-off fifth of all taxpayers.

2. It is very likely that McConnell will initially try to cover up the true cost of his proposal, and then later insist that Congress spend vastly more money because his tax cut would otherwise expand the Alternative Minimum Tax (AMT).

3. The McConnell plan would function poorly as an economic stimulus.

Read the report.

Repeating the familiar mantra that "now is not the time for tax increases", far too many state policymakers have completely dismissed the idea of raising additional revenue to fill their looming budget shortfalls. Other lawmakers, however, have at least left some modest revenue raising ideas on the table. In this piece, we highlight just a few of the ways to boost revenues that have sprung up in states such as Kansas, Oregon, and Massachusetts.

Kansas should be in a somewhat better position than many states, at least politically, when it comes to raising additional revenue. Before Kansas' budget fell into such disarray, legislators passed a variety of unwise business tax cuts that have yet to be completely phased in. Now, with the economy having made a turn for the worst, vulnerable Kansas families are in need of state assistance to weather the storm. At least one Kansas lawmaker has pointed to freezing the phase-in of these business tax cuts as one possibility for protecting state revenues and the families that rely on them. Other states in the process of phasing-in tax breaks may want to re-think their priorities before allowing the phase-in to occur.

Oregon's governor has taken things a step further by proposing three concrete, though not terribly progressive or innovative, ways to boost revenue during these desperate times. First, the Governor would like to raise the state's cigarette tax, a move that many other states have also identified as one of the most politically palatable options available (e.g. Arkansas, Florida, Georgia, Kentucky, Mississippi, South Carolina, Utah, and Virginia). We've written about the connection between the cigarette tax and budget shortfalls before here.

Second, the Governor is seeking some very minor increases in the gas tax, vehicle registration fees, and title fees in order to pay for transportation. Though the two cent gas tax increase he's pondering (and some hikes in various vehicle fees) won't fix Oregon's transportation woes, such a move is certainly preferable to pretending there isn't a need for additional revenue.

Finally, the Governor recommends increasing the state's corporate minimum tax. As was pointed out in the Governor's release, Oregon's corporate minimum tax has not been raised since 1929. As a result, the minimum tax has ceased to be an effective protection against companies who seek to manipulate the tax code to escape taxation. But while the Governor's increase in the minimum tax would generate approximately $40 million per year, this would ultimately be only a very minor step toward a better system of corporate taxation. Fortunately, the Oregon Center for Public Policy has played a leading role in advocating much more meaningful tax solutions in the state, especially in their recent report titled," Rolling Up Our Sleeves: Building an Oregon that Works for Working Families".

And lastly, a valuable reminder regarding the potential revenue to be had from taxing internet sales surfaced in Massachusetts this week, where the Governor proposed (and significant legislative support has formed around) an idea to tax companies that have agreed to participate in the streamlined sales tax initiative. Since participation is currently voluntary, such a move is estimated to produce only $15 million per year for the state -- not a huge sum, but it certainly doesn't hurt. Should a comprehensive internet sales tax plan be passed by the federal government, however, the state could enjoy as much as $545 million in additional annual revenue. Continuing the forward momentum of the streamlined sales tax initiative could ultimately prove quite valuable in enhancing the sustainability of state revenue systems

The news from California just keeps getting worse. Faced with a budget deficit that could reach as much as $42 billion by June 2010 and the prospect that the state will soon deplete its cash reserves, State Controller John Chiang announced last week that the state may have to begin issuing IOU's to state employees and to contractors who do business with the state. There's also the chance that, rather than receive the refunds to which they may be entitled, California taxpayers may receive promises that they'll be paid later as well.

So, while Governor Schwarzenegger is busy vetoing the Assembly's latest budget plan, because, he maintains, it "punish[es] people with increased taxes," millions of Californians must now prepare themselves to pay, in essence, higher taxes than they expected to pay this year. Such an outcome hardly seems justifiable, given the likelihood that those residents entitled to refunds are low- and moderate-income families, families that would almost certainly use those tax refunds to pay off bills or to make long-planned purchases.

In light of these developments, the state's Legislative Analyst, Mac Taylor, is now urging policymakers to put tax increases before the states' voters as early as April, so that they can avoid the supermajority-induced gridlock that has plagued Sacramento in recent years.

Of course, California isn't alone in suffering through fiscal crises brought on by unsound tax limits and undemocratic procedural rules. Coloradoknows them quite well too, thanks to the so-called Taxpayer Bill of Rights (TABOR) approved by state voters in 1992. Unless some major changes are made this year, it will likely endure some considerable woes in the years ahead. Why is that? Well, as Erika Stutzman of Boulder's Daily Camera observes, during recessions, "double-whammy style, [ Colorado hits] the 'ratchet' effect: TABOR's requirement that the previous year's budget be used to determine next year's budget." So, if spending falls this year, that lower level of spending will serve as the baseline for growth in all future years. Quite sensibly then, Ms. Stutzman backs legislative changes to TABOR to prevent that from happening.