There are few areas of policy where lawmakers’ shortsightedness is on display as fully as it is with the gasoline tax.  Now, with a series of twenty six new charts from the Institute on Taxation and Economic Policy ( ITEP), you can see the impact of that shortsightedness in most states as shareable graphs.

Overall, state gas taxes are at historic lows, adjusted for inflation, and most states can expect further declines in the years ahead if lawmakers do not act.  Some states, including New Jersey, Iowa, Utah, Alabama, and Alaska, are levying their gas taxes at lower rates than at any time in their history.  Other states like Maryland, Oklahoma, Massachusetts, Missouri, Tennessee, Arkansas, and Wyoming will approach or surpass historic lows in the near future if their gas tax rates remain unchanged and inflation continues as expected.

These findings build on a 50-state report from ITEP released last month, called Building a Better Gas Tax.  ITEP found that 36 states levy a “fixed-rate” gas tax totally unprepared for the inevitable impact of inflation, and twenty two of those states have gone fifteen years or more without raising their gas taxes.  All told, the states are losing over $10 billion in transportation revenue each year that would have been collected if lawmakers had simply planned for inflation the last time they raised their state gas tax rates.

View the charts here, and read Building a Better Gas Tax here.

Note for policy wonks: Charts were only made in twenty six states because the other twenty four do not publish sufficient historical data on their gas tax rates.  It’s also worth noting that these charts aren’t perfectly apples-to-apples with the Building a Better Gas Tax report, because that report examined the effect of construction cost inflation, whereas these charts had to rely on the general inflation rate (CPI) because most construction cost data only goes back to the 1970’s.  Even with that caveat in mind, these charts provide an important long-term look at state gas taxes, and yet another way of analyzing the same glaring problem.

Example:

In 2000, when the economy was strong and the state appeared to be flush with funding, Massachusetts taxpayers voted to incrementally roll back the personal income tax rate from 5.75 to five percent.  In 2002, the state legislature halted the rollback at 5.3 percent in response to an economic downturn with a provision that it could resume if revenues exceeded 2.5 percent growth.  The fiscal restraint inherent in this provision is admirable, but did not quite accomplish the legislature’s primary goal – preventing unaffordable tax cuts when the state can least afford them.

This year, it looks like the tax rollback will resume since revenues are expected to increase between 4 and 5 percent over 2010.  But these figures actually represent a decrease in revenue when compared to pre-recession levels.  In 2008, tax revenues were nearly $21 billion.  That number dropped to just over $18 billion in 2009, and increased incrementally to $18.5 billion in 2010.  This year’s projections put the state’s revenue at slightly over $20 billion, leaving the state less well-off than it was in 2008.

The pinch on the state’s budget has been felt by almost every Massachusetts resident.  Sweeping funding cuts in education, law enforcement, health care, housing, and transportation have increased the burden on low- and middle-income families year after year.  Facing a $1.9 billion budget gap in 2012, this fiscal year’s budget also includes drastic spending cuts.  The largest of these cuts include carving out $63.8 million from higher education funding, $316.7 million from MassHealth (the state’s Medicaid program), $56.8 million from transportation funding and $100.5 million from the budget for courts and legal assistance (primarily reducing the state’s indigent defense system).  "What I've seen in my district is continued cuts to education, environmental aid and affordable housing," said State Senator Jamie Eldridge of Acton. "People are really talking about how the budget cuts that have already happened are very negative."

Proponents of the tax rollback refer to the reduction from 5.3% to 5.25% as “miniscule.”  Yet for 2012, that reduction represents $114 million in lost revenue for the state.  Obviously, that is not enough to make up for the state’s $1.9 billion budget shortfall, but it could stave off further tuition spikes in the state university system and mitigate planned transit fare hikes. 

Massachusetts also has an opportunity to learn from its mistakes.  When the economy was flush in the early 90’s, Massachusetts dropped its tax rates, then spent years trying to fill in its budget gaps.  The same pattern has developed again, made worse by a deep and unrelenting recession.  Using the first glimpses of economic recovery as an excuse to lower taxes yet again is imprudent.  Instead, the state should use the revenue surplus to revoke a portion of the drastic cuts implemented in this year’s budget, or at the very least, retain the surplus to stave off future budget shortfalls.

Photo of Massachusetts State Senate Chambers via Cody Hanson Creative Commons Attribution License 2.0

Late last week the Massachusetts legislature passed, and the Governor signed, legislation making Massachusetts the 17^th state to offer a back-to-school sales tax holiday.  This is the same Deval Patrick who recently said he supported the legislation “frankly, not because it is particularly fiscally prudent, but because it is popular…. People want it."

We couldn’t agree more. Sales tax holidays may be politically popular, but they are poor fiscal policy. There’s scant evidence they make a long term difference for retailers, and they fail to target tax relief to those consumers most in need.

The holidays can also be costly to the treasury (Massachusetts expects to lose $20-25 million) and create administrative headaches.

We hope Governor Patrick will take a look at our brief on sales tax holidays between now and next year; it will give him the facts and courage he needs to say no to lousy policy.

Photo via WebN-TV Creative Commons Attribution License 2.0

For a review of the most significant state tax actions across the country this year and a preview for what’s to come in 2011, check out ITEP’s new report, The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes.

"Good" actions include progressive or reform-minded changes taken to close large state budget gaps. Eliminating personal income tax giveaways, expanding low-income credits, reinstating the estate tax, broadening the sales tax base, and reforming tax credits are all discussed.  

Among the “bad” actions state lawmakers took this year, which either worsened states’ already bleak fiscal outlook or increased taxes on middle-income households, are the repeal of needed tax increases, expanded capital gains tax breaks, and the suspension of property tax relief programs.  

“Ugly” changes raised taxes on the low-income families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or stifled the ability of states and localities to raise needed revenues in the future. Reductions to low-income credits, permanently narrowing the personal income tax base, and new restrictions on the property tax fall into this category.

The report also includes a look at the state tax policy changes — good, bad, and ugly — that did not happen in 2010.  Some of the actions not taken would have significantly improved the fairness and adequacy of state tax systems, while others would have decimated state budgets and/or made state tax systems more regressive.

2011 promises to be as difficult a year as 2010 for state tax policy as lawmakers continue to grapple with historic budget shortfalls due to lagging revenues and a high demand for public services.  The report ends with a highlight of the state tax policy debates that are likely to play out across the country in the coming year.

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “ tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

On Tuesday, voters in 37 states went to the polls to vote for Governor. The results of nine gubernatorial races provide a small glimmer of hope for sensible, balanced, and progressive approaches to addressing the next round of state budget shortfalls.  Two candidates campaigned on raising taxes, four incumbents were re-elected after implementing new taxes to close previous budget gaps, and three governors-elect won races against opponents who sought to dismantle progressive tax structures.

As for those governors-elect who have rejected revenue increases, the next four years will be quite a challenge. In Texas, Governor Rick Perry will face a projected two-year $21 billion budget shortfall.  Likewise in Pennsylvania, Governor-elect Tom Corbett is staring at a $5 billion budget deficit next year.  Faced with these problems, this new crop of state executives can take either a dogmatic cuts-only approach or they can opt for a more flexible approach that allows for raising new revenue by closing tax loopholes or implementing other reforms.

Candidates Who Campaigned on Raising Taxes

In Minnesota, Mark Dayton ran for governor on a progressive tax platform, calling taxes “the lubricant for the machinery of our democracy." He has proposed increasing taxes on the wealthiest 5 percent of Minnesotans to raise revenue to address the state’s continuing budget woes and to improve tax fairness.  Although the Minnesota gubernatorial race remains undecided and Dayton may face a recount, Dayton’s small lead demonstrates the support he has received for purposing such a beneficial progressive tax plan.

In Rhode Island, Lincoln Chafee won a three-way race against Republican John Robitaille and Democrat Frank Caprio.  Like Dayton, Chafee championed tax increases aimed at refilling the state’s depleted coffers.  During the campaign Chafee, whose father lost a Rhode Island gubernatorial race 42 years ago after supporting a state income tax, proposed a one percent sales tax on previously exempted items.  Though more likely to adversely affect low-income families than Dayton’s plan, Chafee deserves credit for supporting a moderate tax plan in this cycle of anti-government sentiment.

Candidates Who Defeated Opponents Targeting Progressive Tax Structures

Besides Dayton and Chafee, three other winners on Tuesday night defeated opponents who sought to drastically cut taxes and reduce spending and government services.  In California, Jerry Brown defeated Meg Whitman, who supported a regressive tax cut that would only benefit taxpayers who claim capital gains income. 

In New York, Andrew Cuomo defeated Carl Paladino, who promised to cut taxes by 10 percent and spending by 20 percent in his first year.  Unfortunately, however, Andrew Cuomo has not fully distanced himself from Paladino’s vilification of taxes.  Instead, Cuomo, along with eleven newly elected Republican Governors, has pledged to freeze taxes, vetoing any hike that comes his way.  This absolutist approach does nothing to alleviate the enormous deficit problems faced by each of these states.

In Colorado, Democrat John Hickenlooper defeated Republican Dan Maes and Independent Tom Tancredo.  Maes, who lost voter support after the Republican primary, promised to lower income taxes and cut spending.  As Maes’ popularity decreased, Tom Tancredo began to gain steam, eventually garnering around 37% of the vote.  In their final debate Tancredo proposed removal of “any tax rebates or incentives.”  For his own part, Hickenlooper never committed to raising or lowering taxes, but did call for a "voluntary" tax on the oil and gas industry to fund higher education.

Incumbents Re-elected After Raising Taxes

The Governors of Maryland, Illinois, Arkansas, and Massachusetts pulled off victories after enacting or supporting new taxes during their previous terms. 

In Maryland, Martin O’Malley, who defeated former Governor Robert Ehrlich, oversaw tax increases in his first term to fix a $1.7 billion deficit.  O’Malley’s plan relied in part on progressive tax increases, including a temporary increase in the income tax rate paid by millionaires. While Republicans criticized the tax increases, the citizens of Maryland approved enough to re-elect O’Malley with over 55% of the vote.

In Illinois, Governor Pat Quinn is the likely winner of a tight race against Republican challenger Bill Brady.  Since becoming Governor in the wake of former Governor Blagojevich’s scandal, Pat Quinn has repeatedly proposed to raise income tax rates to fill budget holes.  Quinn would use the revenue raised to fund education.  Meanwhile Brady, Quinn’s opponent, championed tax cuts that included repealing the sales tax on gasoline and eliminating the inheritance tax.

In Arkansas, Republican Jim Keet was soundly defeated by Governor Mike Beebe in his re-election bid.  During his first term, Beebe implemented a significant hike in tobacco sales taxes, raising the tax on a pack of cigarettes by 56 cents.  The increase was designed to increase revenues by $86 million to fund statewide trauma systems and expanded health care coverage for children.

In Massachusetts, Deval Patrick was re-elected Governor after signing last year’s budget that included an increase in the sales tax rate. Patrick also showed interest in improving fairness in Massachusetts’ tax code. Bay State voters rewarded Patrick for his tough decisions by handily re-electing him.

The stakes will be high for state tax policy on Election Day, with tax-related issues on the ballot in several states. With a couple of notable exceptions (a new income tax in Washington and rollback of corporate tax breaks in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Personal Income Tax

Colorado: Proposition 101 would reduce or eliminate various fees and immediately reduce the state’s income tax rate from 4.63 to 4.5 percent and eventually to 3.5 percent).  If passed, Proposition 101 will result in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Washington: Initiative 1098 would introduce a personal income tax, reduce the state property tax and eliminate the Business and Occupation tax for small businesses. If passed, this legislation would improve tax fairness in the state with the most regressive tax structure in the country.  For more read CTJ's Digest articles  about this initiative.

Business Tax Breaks

California: Proposition 24 would eliminate several business tax breaks enacted in 2008 and 2009 and increase state revenues by more than $1.3 billion.  For more details on these tax breaks, read the California Budget Project's Budget Brief on the initiative.

Super-Majority Voting Requirements

California: Proposition 25 would remove the current two-thirds super-majority requirement needed to pass the state budget (replacing it with a simple majority vote), while Proposition 26 would institute a new super-majority requirement for raising certain fees (classifying them as taxes).  For more details on these initiatives, read the California Budget Project’s initiative summaries.

Washington: Initiative 1053 would, if approved, ensure that no tax increases (no matter their size) become law without either approval by a two-thirds majority in the legislature or a public vote of the people. The Washington Budget and Policy Center gives a helpful summary of the initiative and its potential impact.   

Earnings Taxes

Missouri: Proposition A, if approved, would require that voters be asked every five years to decide whether or not local earnings taxes levied in St. Louis and Kansas City should exist. (If voters then decide to not allow them, they will be phased out over a ten-year period). The Proposition would also exclude any other local government from levying its own earnings taxes. For more on Proposition A, read Missouri Budget Project’s fact sheet.

Sales Taxes

Massachusetts: Question 1 and Question 3
A diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have joined together to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 would remove the sales tax on alcohol which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 would repeal the new sales taxes on a variety of goods including soda, bottled water, and candy. For more information, read CTJ's Digest article on the issue and the Washington Budget and Policy Center’s summary.

Despite the regressive nature of the sales tax, it's an important revenue source. Slashing it in either Washington or Massachusetts without replacing the lost revenue with another source would cripple the ability of those states to provide core services such as education and public safety to their residents.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 would exempt fully disabled prisoners of war (POWs) from paying property taxes. Read Missourians for Tax Justice’s take on this issue.

Virginia: Question 2 would change Virginia’s constitution to exempt veterans and their surviving spouse from paying property taxes if the veteran is 100 percent disabled.

Property Tax Caps

Colorado: Amendment 60 would take away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes.  Currently, voters can approve an increase in property tax rates above the constitutional limit which caps increases at the rate of inflation plus a small measure of local growth.  The amendment would also require school districts to cut property tax rates in half over the next ten years and replace the lost revenue for K-12 schools with state funding (an estimated $1.5 billion will be required from the state, meaning reductions will have to made to other services to support an increase in K-12 spending).

Indiana:  Public Question #1 will ask Indianans to decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. Voters may find it helpful to read this brief from the Indiana Institute for Working Families.

Real Estate Transfer Fees

Missouri: Constitutional Amendment 3 would prohibit the state from enacting any type of real estate transfer tax. Missouri currently doesn’t levy any such tax.  Placing the question before voters is seen as a preemptive move by the Missouri Association of Realtors to ensure that the state can’t create a transfer tax.

Montana: Constitutional Initiative 105 would, if approved, prohibit the state from enacting any type of real estate transfer tax.  The state currently doesn’t levy such a tax. The Billings Gazette has weighed in on this Initiative.

Government Borrowing

California: Proposition 22 would amend California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.  For more information, read the California Budget Project’s brief on the initiative.

Colorado: Amendment 61 would prohibit or restrict all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

California

Californians have a plethora of fiscal related ballot initiatives to vote on in November. 

In addition to Proposition 24 (ending business tax breaks), voters will be asked whether to impose an $18 vehicle fee to fund the state park system (Prop 21), amend the state Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs (Prop 22), allow for a simple majority legislative vote requirement for passage of the state budget (Prop 25), and reclassify certain fees as taxes meaning that legislative votes on fees would then require the now necessary two-thirds approval for passage of tax increases. 

The California Budget Project has published five informative budget briefs on the propositions that are very helpful tools for voters.

Massachusetts

In Massachusetts, a diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have lined up to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent.  Opponents argue that the resulting annual loss of $2.5 billion from the proposed cut would cripple the state’s ability to provide core services such as education and public safety to Massachusetts residents.  Despite the depth and fundraising power of the opposing coalition, recent polling showed residents are pretty much split on whether or not the proposal is a good idea for the state. 

Missouri

This November, Missouri voters will be asked to make a judgment call on Amendment 2. If passed, this constitutional amendment would exempt fully disabled prisoners of war (POWs) from paying property taxes. Of course, everyone respects the sacrifice that POWs made, but this Amendment raises some important tax policy concerns.

First, should tax policies, especially ones that will assist so few people (estimates are that only 100 people would be impacted), really be written into a state's constitution?

Secondly, is it fair to single out a specific group of people and offer them a tax break? Missouri already allows countless exemptions and offers special treatment to a variety of taxpayers. Perpetuating this treatment of special groups violates fundamental tax fairness principles. In fact, most veterans already qualify for a special property tax credit.

We couldn't agree more with the Kansas City Star when it opines, "Disabled prisoners of war are deserving of honor. But changing property tax laws isn’t the way to do it."

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.

Candidates across the country are gearing up for the November elections. Over the coming months we'll highlight just some of the candidates running in local, state, and national races with an eye toward evaluating their positions in terms of tax fairness.

√ Current Iowa Governor Chet Culver - Iowa's film tax credit program has been costly and controversial. This week current Governor Chet Culver came out against keeping the program. He said in a recent news conference, "We’re not going to be taken for suckers. People, unfortunately, exploited that program.”

√ Current Illinois Governor Pat Quinn - During the Democratic primary we wrote about Governor Quinn's proposal to raise income taxes in a progressive way. Now Candidate Quinn is proposing that, in combination with an income tax hike, he would urge local school districts to reduce regressive property taxes. He recently said, "If you get additional new money from Springfield, from the state government, then I think part of the bargain has to be that the local school districts at least roll back a portion of their property taxes. It's a fair bargain."

√ Current Massachusetts Governor Deval Patrick - Massachusetts voters will be asked to decide Question 3, which would slash the state sales tax from 6.25 to 3 percent. Despite the regressive nature of the sales tax, taking a hammer to this revenue stream would have a disastrous impact on the state budget. Current Governor and gubernatorial candidate Deval Patrick has come out against Question 3, saying that if the sales tax is reduced it would be "a calamity."

X South Carolina gubernatorial candidate Nikki Haley - South Carolina collected $147 million in corporate income tax revenue in the last fiscal year. Nikki Haley has said that she would eliminate the tax altogether in hopes of attracting more businesses. She said at a recent fundraiser, "If we become a no-corporate-income-tax state, we will become a magnet for companies." Instead of proposing to throw out an entire revenue source, she should take a minute to read ITEP's latest policy brief on economic development.

X Vermont gubernatorial candidate Brian Dubie - Candidate Dubie is campaigning on a promise to cut $240 million in income and property taxes paid by Vermonters. Specifically, he would drastically reduce personal income tax rates, cut corporate income tax rates, and support a property tax cap.  But when he was asked how the tax cuts would be paid for in terms of fewer services, Dubie couldn't offer any details.

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.