We’re in the heart of sales tax holiday season now.  Despite cooler heads prevailing in DC and Georgia, where sales tax holidays have been scrapped due to gloomy budget projections, Massachusetts and North Carolina have recently decided to move ahead with their holidays, and Illinois has decided to join the party for the first time.

By now, you may be familiar with all the reasons why sales tax holidays are a bad idea (read this ITEP policy brief if you’re not).  Aside from those groups with a vested interest in the holidays (e.g. retailers looking for free advertising, politicians looking to build their anti-tax credentials, and confused parents thinking these things actually save them money), just about everyone seems to agree that sales tax holidays are a worthless political gimmick.  Stateline pointed out last week that analysts as varied as those at Citizens for Tax Justice and the Tax Foundation have come to an agreement on this point.

But as long as sales tax holidays remain popular enough to remain impervious to most state budget crises, we might as well take a moment to marvel at some of their more glaring absurdities.  For example, this year, Massachusetts’ sales tax holiday will apply to alcohol.  College students in the state clearly have quite an effective lobbying presence in Boston.  Interestingly, neither tobacco nor meals will be included in the holiday.

In Illinois, which doesn’t have any experience with sales tax holidays, one columnist speculates that his wife isn’t alone in erroneously believing that the back-to-school holiday applies only to children’s clothes.  Indeed, adult clothes are included as well; as are aprons and athletic supporters.  Work gloves, however, will still be subject to tax.  You’d think that the Illinois Department of Revenue already has enough on its plate without having to worry about such minutia.

Finally, in South Carolina, it looks like the state’s Tax Realignment Commission is going to recommend quite a few changes to the state’s tax holidays.  For starters, the state’s bizarre post-Thanksgiving tax holiday on guns has to go, according to the Commission.  And changes could be in store for the August holiday as well.  The State reports that if the Commission gets its way, “this could be the last year to get your wedding gown, baby clothes, pocketbooks and adult diapers at a discount on back-to-school tax-free weekend.”  Interestingly, the South Carolina representative who first introduced the sales tax holiday idea actually agrees, claiming that he wanted only the holiday to apply to stereotypical “back to school” purchases – that is, things other than wedding gowns and adult diapers.

When the budget hole is big and deep it makes sense to stop digging it bigger and deeper, right? Apparently not, according to some Massachusetts lawmakers. The state House of Representatives has approved a bill that would reduce the tax on capital gains income for start-ups.

We agree with Noah Berger of the Massachusetts Budget and Policy Center, who says, “There is very little evidence of what they would do to help the economy, and they are fairly costly over the long run. The basic question is whether it is worth making cuts in other parts of government, like education or local aid, in order to pay for the new corporate tax cuts.’’

Voters this November in a variety of states may have the opportunity to vote against anti-tax initiatives, as well. Right-wing activists were successful recently in gathering signatures for a handful of misguided anti-tax initiatives in Colorado, Massachusetts and Washington.  

Colorado voters are going to have a congested ballot come November. Proposition 101 and Amendments 60 and 61 have all qualified for the ballot and would have an enormous impact on Coloradans' way of life. About these three proposals the Denver Post opines, "The operating language within each one is a virus that would cripple the ability of our local and state governments to provide the most basic of services — from building schools for our children to supplying clean water to our homes. Both Democratic and Republican politicians have joined leaders in business and community organizations to oppose the initiatives."

According to the Ballot Initiative Strategy Center: "Amendment 60 would overturn voters' decision to opt out of Colorado's TABOR limitations. The initiative also cuts property tax rates in half over a ten-year period. The statutory Proposition 101 would slash state and local revenues to the tune of $1.7 billion by reducing the state income tax, motor vehicle fees, and telecommunications fees." Amendment 61 would prohibit all levels and divisions of government from bonding, even if they previously had the authority to do so. These measures would have a disastrous impact on Coloradans' way of life.

The Boston Herald is reporting that an initiative proposing to reduce the Massachusetts sales tax from 6.25 to 3 percent is likely headed to the November ballot. The proposal would cost the state a jaw-dropping $2.4 billion annually. Proponents of the legislation delivered more than the required 11,099 signatures to the Secretary of State's office Wednesday. In somewhat brighter news, none of the four candidates for governor appear to support the initiative and have said that if it passes, deep cuts in state and local services would be all but guaranteed. Despite the regressive nature of the sales tax, it's important because slashing it would cripple Massachusetts' ability to provide for its residents.

Another initiative that reportedly has enough signatures to appear on the November ballot, backed by beer and wine wholesalers, would eliminate the new sales tax on alcohol.  Last year, state lawmakers removed the sales tax exemption on beer, wine and liquor and added them to the state’s sales tax base in order to raise $80 million for substance abuse programs.

Tim Eyman, Washington state's notorious anti-tax crusader, is up to his old, tired tricks again. Initiative 1053 would permanently re-establish the requirement for a two-thirds supermajority vote in the Legislature or a statewide popular vote in order to pass tax increases.  A similar measure won at the ballot in 2007, but that measure allowed the legislature to repeal the rules by a simple majority vote after two years.  Facing a $2.8 billion budget gap this year, Washington legislators suspended the requirement in February for 16 months to pass tax increases to mitigate cuts to vital state services.  If passed this initiative impairs the ability of Legislators to do what they were elected to do — legislate.

Eyman is also supportive of Initiative 1107, which would roll back the new state taxes on a variety of goods including soda, bottled water, and candy. (Advocates of both initiatives turned in over 700,000 signatures to see that these issues will be placed before the voters in November.) Of course sales taxes are regressive, but the cost of removing the sales tax from these items is pretty stark. According to the Children's Action Alliance, "The choice for us is clear, a few extra pennies or the loss of essential services for kids."

Not surprisingly, the main financial backer of Initiative 1107 is the American Beverage Association, which has reportedly spent more than $1 million on the ballot effort thus far.

Washington recently joined with 30 other states to tax candy. If you want to see how your state taxes candy, see Washington State Budget and Policy Center's handy map on the subject.

And then there were seven.  With the enactment of a tax expenditure reporting requirement in Georgia late last week, only seven states in the entire country continue to refuse to publish a tax expenditure report — i.e. a report identifying the plethora of special breaks buried within these states’ tax codes.  For the record, the states that are continuing to drag their feet are: Alabama, Alaska, Indiana, Nevada, New Mexico, South Dakota, and Wyoming. 

But while the passage of this common sense reform in Georgia is truly exciting news, the version of the legislation that Governor Perdue ultimately signed was watered down significantly from the more robust requirement that had passed the Senate.  This chain of events mirrors recent developments in Virginia, where legislation that would have greatly enhanced that state’s existing tax expenditure report met a similar fate. 

In more encouraging news, however, legislation related to the disclosure of additional tax expenditure information in Massachusetts and Oklahoma seems to have a real chance of passage this year.

In Georgia, the major news is the Governor’s signing of SB 206 last Thursday.  While this would be great news in any state, it’s especially welcome in Georgia, where terrible tax policy has so far been the norm this year. 

SB 206 requires that the Governor’s budget include a tax expenditure report covering all taxes collected by the state’s Department of Revenue.  The report will include cost estimates for the previous, current, and future fiscal years, as well as information on where to find the tax expenditures in the state’s statutes, and the dates that each provision was enacted and implemented. 

Needless to say, this addition to the state’s budget document will greatly enhance lawmakers’ ability to make informed decisions about Georgia’s tax code. 

But as great as SB 206 is, the version that originally passed the Senate was even better.  Under that legislation, analyses of the purpose, effectiveness, distribution, and administrative issues surrounding each tax expenditure would have been required as well.  These requirements (which are, coincidentally, quite similar to those included in New Jersey’s recently enacted but poorly implemented legislation) would have bolstered the value of the report even further.

In Virginia, the story is fairly similar.  While Virginia does technically have a tax expenditure report, it focuses on only a small number of sales tax expenditures and leaves the vast majority of the state’s tax code completely unexamined.  Fortunately, the non-profit Commonwealth Institute has produced a report providing revenue estimates for many tax expenditures available in the state, but it’s long past time for the state to begin conducting such analyses itself.  HB355 — as originally introduced by Delegate David Englin — would have created an outstanding tax expenditure report that revealed not only each tax expenditure’s size, but also its effectiveness and distributional consequences. 

Unfortunately, the legislation was greatly watered down before arriving on the Governor’s desk.  While the legislation, which the Governor signed last month, will provide some additional information on corporate tax expenditures in the state, it lacks any requirement to disclose the names of companies receiving tax benefits, the number of jobs created as a result of the benefits, and other relevant performance information.  The details of HB355 can be found using the search bar on the Virginia General Assembly’s website.

The Massachusetts legislature, by contrast, recently passed legislation disclosing the names of corporate tax credit recipients.  While these names are already disclosed for many tax credits offered in the state, the Department of Revenue has resisted making such information public for those credits under its jurisdiction. 

While most business groups have predictably resisted the measure, the Medical Device Industry Council has basically shrugged its shoulders and admitted that it probably makes sense to disclose this information.  Unfortunately, a Senate provision that would have required the reporting of information regarding the jobs created by these credits was dropped before the legislation passed.

Finally, in Oklahoma, the House recently passed a measure requiring the identities of tax credit recipients to be posted on an existing website designed to disclose state spending information.  If ultimately enacted, the information will be made available in a useful, searchable format beginning in 2011.

Recent developments in Oregon and Massachusetts demonstrate how relying too heavily on tax breaks to accomplish policy goals can quickly cause things to get out of hand.  Policymakers in Maryland should heed these warnings when considering the Governor’s recent proposal to create new tax incentives for businesses, despite the state’s dire budgetary outlook.

In Oregon, the controversy involves the state’s Business Energy Tax Credit (BETC, or “Betsy”).  The BETC program is purportedly designed to encourage the growth of “green” energy companies in Oregon.  Under pressure from the Governor’s office, the Oregon Department of Energy is reported to have deliberately (and drastically) low-balled the cost-estimate attached to the BETC program.  This lower cost estimate allowed the program to be enacted with much less scrutiny than would otherwise have been the case.  Of course, if the program had instead been operated as a traditional spending program, its overall size would have been limited to whatever dollar amount the legislature decided it deserved during the appropriations process.

The Oregon credit has also taken heat in recent weeks for its lack of accountability – specifically, by providing benefits to businesses that have done little or anything to create jobs or improve the environment.  And moreover, because of the “transferability” of these credits, the program has also resulted in huge windfall benefits to businesses, including Walmart, that have made absolutely no attempt to promote the credit’s environmental goals.

In order to quell the outrange expressed by Oregonians at this blatant misuse of state resources, the Governor has since proposed, among other things, to cap the overall size of the BETC program and force the government to prioritize potential projects in order to bring the cost of the program beneath that cap.  It remains to be seen whether the Governor’s recommendations will be enough to salvage this so far disastrous program.

While Oregon’s recent experience with BETC provides anecdotal evidence of the danger of relying upon the tax code as a tool of economic development, evidence from Massachusetts provides an even more comprehensive picture of this problem.  The Massachusetts Budget and Policy Center’s (MBPC) recent analysis of economic development tax incentives shows that while traditional government “spending” has been forced downward by the economic recession, spending on business tax incentives has continued to rise sharply.  The 2.8% drop in FY10 appropriations, for example, contrasts sharply with a 4.2% increase in FY10 economic development tax breaks.  MBPC explains the cause of this asymmetry as follows:

“Tax expenditures are in many ways similar to direct appropriations. Both seek to achieve certain policy goals through the use of the state’s economic resources, and both have an effect on the state’s bottom line. A primary difference is that budget appropriations must be reauthorized by the Legislature each year, while tax expenditures remain in effect without the Legislature having to take action.  The effectiveness of these tax expenditures is rarely examined in any detail and very little data is available to analyze.”

In order to correct this bias in favor of special tax breaks, the MBPC proposes six reforms designed to shine a brighter light on these programs.  The first such reform, “provide information on the purpose and effectiveness of each tax expenditures,” mirrors a proposal made by CTJ just last month.

On the heels of this disappointing news from Oregon and Massachusetts comes a proposal from Maryland Governor Martin O’Malley to provide businesses with a $3,000 tax credit for each employee they hire.  While the Governor has thankfully proposed to cap the overall credit at $20 million, one can’t help but wonder whether another economic development tax break is really the best use of the state’s very scarce resources.

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

One tax break, three companies, $281 million in lost revenue. 

That’s one of the key findings of a recent analysis, conducted by the Massachusetts Department of Revenue (DOR), of a provision included in the Commonwealth’s corporate tax reform legislation in 2008.  As the Massachusetts Budget and Policy Center (MBPC) explains, the provision, added under questionable circumstances during legislative debates, was designed to ”give a new tax break to companies ‘if book-tax differences … result in an increase to a net deferred tax liability or decrease to a net deferred tax asset for any taxpayer affected by this section.’” 

Yet, as the MBPC points out, at the time the provision was added to the legislation, there was no publicly available explanation of what it would cost or any description of the policy goals it was intended to achieve.  The DOR’s analysis finally puts some numbers to those expected costs:  over the next seven years, 128 corporations will realize tax reductions totaling $535 million due to the provision, with over half -- $281 million – going to just a trio of companies. 

Needless to say, given Massachusetts financial woes, the DOR’s report has some legislators rethinking the wisdom of this particular feature of the tax code.

As the New York Times reported earlier this month, California's tax incentive for film production - a loss of $100 million in exceptionally revenue scarce tax revenue - seems likely to escape the budget cutting axe, despite the state's mammoth deficit. Meanwhile, Utah's Film Commission Director Marshall Moore recently leapt to the defense of his state's tax giveaway for movies and television.

Lawmakers in both states should think again. A new and detailed evaluation of Massachusetts' film tax credit should lead policymakers across the country to ask whether they are getting their money's worth from such incentives. Between 2006 and 2008, the Commonwealth paid out a total of $166 million in film tax credits. According to the report, the new revenue resulting from film production activity was just $26 million.

The report further notes that "feature films, television series, commercials, and documentaries produced in the Commonwealth" between 2006 and 2008 generated roughly 3,200 full time equivalent jobs. But approximately 60 percent of those jobs were held by non-residents, while over 80 percent of the wages paid on film productions accrued to employees living out of state. (The full report is available here.)

Connecticut Voices for Children highlights many of the same problems in its recent and valuable analysis of that state's film tax credit.

In an effort to stave off draconian cuts in vital public services in the face of plummeting revenues, the Massachusetts House of Representatives this past week passed a bill to increase the state's sales tax rate from 5.0 percent to 6.25 percent. If enacted into law, the bill is expected to generate some $900 million in additional revenue each year.

The bill's fate in the Senate is unclear at present, but what is clear is that the Senate should modify the bill to mitigate its impact on low-income individuals and families. For instance, the Senate could use some of the revenue that the rate increase would produce to enhance one of two features of the Massachusetts income tax designed to ease poorer families' tax responsibilities.

Like more than 20 other states, Massachusetts offers a refundable Earned Income Tax Credit (EITC). The BayState's EITC is set to 15 percent of the federal credit, which is now well below the level of the credit provided in several other Northeastern states. (Vermont's version of the credit is 32 percent of the federal, New York's is 30 percent, and New Jersey's is 25 percent.)

In addition, Massachusetts allows elderly taxpayers to claim a refundable "circuit-breaker" credit to ensure that the property taxes they pay do not exceed a given level of income. A number of states allow non-elderly taxpayers, as well as seniors, to partake of similar credits.

Expanding either one (or both!) of these credits would, in effect, help to keep an increase in the sales tax from imposing too great a tax responsibility on those Massachusettans struggling to make ends meet.

For more on Massachusetts' fiscal situation, visit the Massachusetts Budget and Policy Center's informative web site.

Despite their obvious unfairness, tax amnesties are a tool frequently used by states during tough budgetary times. By waiving late fees and sometimes reducing the interest rate charged on overdue taxes, state policymakers can provide their state with a quick band-aid fix without having to make the much harder choice of raising taxes or cutting valued services. But penalizing similar taxpayers at different rates dependent only upon whether they decide to pay up during an amnesty period is plainly unfair. The problems associated with amnesties become even worse, however, as soon as a state establishes a habit of repeatedly offering amnesties during tough economic times.

With the possibility of another amnesty always on the horizon, delinquent taxpayers will think twice before settling their debts with the state during normal times, and at normal penalty rates. Creating multiple sets of penalties (one for normal times, and one, lower penalty when budgets shortfalls are projected) therefore reduces fairness by penalizing similar taxpayers differently based only on the timing of their payment, and can also reduce the effectiveness of enforcement efforts and the tax system broadly. These effects can continue long after the most recent amnesty period ends. (Note that this is very similar to the argument against allowing corporations to "repatriate" their profits to the U.S. at a lower rate, a proposal which was recently rejected at the federal level).

Despite the obvious problems, Maryland and New Mexico are both considering legislation to once again provide temporary tax amnesty programs some time in the coming months. New Mexico last provided an amnesty less than a decade ago, while Maryland's last amnesty came in 2001. After that 2001 amnesty, the Maryland comptroller's office noted that "repeated use of amnesties is likely to create cynicism among law-abiding taxpayers, and lessen the need for voluntary compliance with state tax laws, which is vital for our system of taxation". Should another amnesty be offered less than a decade after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable, especially in light of the fact that a similar program offered in 1987 in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers.

Without a doubt, the momentum in favor of such programs is strong. Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984). Massachusetts is currently in the process of deciding upon a date for its amnesty program (Massachusetts last provided amnesty in 2003). Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002). And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty.

In this environment, it is extremely important for state policymakers to not only oppose more amnesties, but also to convincingly state that another amnesty will not be offered any time in the near future. For states looking to responsibly close their tax gaps, stepping-up enforcement spending is often a route that can produce sizeable returns, and is undoubtedly much more fair than trying to get something for nothing by arbitrarily waiving penalties in an effort to boost voluntary "compliance". For more specific alternatives to the tax amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.

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 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.

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

As we've argued in past Digest articles, there are good reasons for relying on gas tax revenues to fund transportation -- at least when an effort is made to offset the tax's stark regressivity. To the extent that the gas tax falls most heavily on those people who drive the furthest distances, or who drive the heaviest vehicles, there are certainly some advantages to the gas tax. But when the people driving the furthest distances are doing so because they can't afford to live near their places of work, for example, that advantage becomes much less appealing. In this light, recent news regarding the funding of transportation has been both good and bad. While states are seemingly beginning to come around to the idea that gas taxes will need to be raised to provide an adequate transportation infrastructure, interest in offsetting the tax's regressivity has yet to pick up steam.

Support for increasing the gas tax has gained some notable momentum in New Hampshire and Massachusetts as of late, and in Oregon, the Governor even included a small gas tax hike in his recent budget proposal. Utah has taken the idea to another level, as top officials are reportedly considering both increasing and restructuring the state's gas tax. In Vermont, however, while raising the gas tax has gotten some attention, the more prominent proposal has been to simply obtain permission from the federal government to continue using federal highway dollars without having to match that money with state funds (of which it has none). But while there are persuasive reasons for considering aid to the states as one form of stimulus for our troubled economy, one has to wonder why some Vermonters are apparently more averse than these other four states to the idea of paying for their own transportation network.

Unfortunately, while there has been an increasing acceptance of the fact that existing gas tax revenues are inadequate in many states, little notice has been given to the idea of offsetting the stark regressivity of gas tax hikes with low-income refundable credits. This idea was recently made a reality in Minnesota, and has been proposed by the Commonwealth Institute in Virginia as well. Notably, eight states already offer similar credits to offset the regressivity of the sales tax (usually designed specifically to offset the tax on groceries). Nineteen states and D.C. offer refundable EITC's, which while not designed specifically to offset regressive taxes, could perhaps be used in a similar matter. In states in need of additional transportation dollars, coupling any transportation related tax increases with the enactment of a low-income refundable credit, or the enhancement of an existing credit, should be a top priority.

Massachusetts, North Dakota, and Oregon residents rejected regressive and costly income tax cuts (or even outright repeals, in the case of Massachusetts) in each of their respective states this Tuesday. The results in every state were fairly lopsided, with between 60% and 70% of voters coming out in opposition. As we noted in earlier Digest articles, these victories for fair tax policy are partly the result of hard work by progressives and also partly the result of very broad (and sometimes unexpected) coalitions. This cooperation symbolized a growing recognition of the importance of taxes in paying for valued government services and generally improving Americans' quality of life.

The votes in these three states are especially important given the economic slowdown that is laying waste to state budgets across the country. Massachusetts is already projecting a mid-year budget deficit, while Oregon is projecting a deficit in the next fiscal year. North Dakota, though doing well relative to other states, is unlikely to escape the slowdown without similar budgetary wounds. Given such a difficult environment for state budget-makers, it's not at all hard to see that tax cuts are the exact opposite of what is needed -- especially if those cuts are targeted overwhelmingly to the rich.

Multiple stories and descriptions of each of these failed measures can be found in the Tax Justice Digest's Massachusetts, Oregon, and North Dakota archives.