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.

Since the passage of the 1986 Tax Reform Act, federal tax law has given state lawmakers a clear incentive to rely on income taxes, instead of sales taxes, to fund public investments. This is because state income taxes can be written off by federal taxpayers who itemize their deductions, and sales taxes generally cannot. Even with temporary legislation in place that does allow a sales tax deduction, states that rely heavily on sales taxes — and not at all on income taxes — are essentially choosing to ignore what amounts to a federal "matching grant" for states that rely heavily on progressive income taxes.

A new joint report from ITEP and United for a Fair Economy's Tax Fairness Organizing Collaborative quantifies the cost of this choice in seven states that currently have no broad-based income tax — and that make up the gap by leaning heavily on the sales tax. The report shows that collectively, these seven states could reduce the federal taxes paid by their residents by $1.7 billion a year if they enacted a revenue-neutral reform that replaces sales tax revenue with a flat-rate income tax, and that the same states could save their residents $5.5 billion a year in federal taxes by enacting a similarly revenue-neutral shift to a graduated-rate progressive income tax.

Read the report.

Until this week, New Jersey was one of just nine states refusing to publish a tax expenditure report – i.e. a listing and measurement of the special tax breaks offered in the state.  Such reports greatly enhance the transparency of state budgets by allowing policymakers and the public to see how the tax system is being used to accomplish various policy objectives. 

Now, with Governor Jon Corzine’s signing of A. 2139 this past Tuesday, New Jersey will finally begin to make use of this extremely valuable tool.  Beginning with Governor-elect Chris Christie’s FY2011 budget, to be released in March, the New Jersey Governor’s budget proposal now must include a tax expenditure report.  The report must be updated each year, and is required to include quite a few very useful pieces of information.

The report must, among other things:

(1) List each state tax expenditure and its objective;
(2) Estimate the revenue lost as a result of the expenditure (for the previous, current, and upcoming fiscal years);
(3) Analyze the groups of persons, corporations, and other entities benefiting from the expenditure;
(4) Evaluate the effect of the expenditure on tax fairness;
(5) Discuss the associated administrative costs;
(6) Determine whether each tax expenditure has been effective in achieving its purpose.

The last criterion listed above is of particular importance.  Evaluations of tax expenditure effectiveness are extremely valuable since these programs so often escape scrutiny in the ordinary budgeting and policy processes.  Such evaluation can be quite daunting, however, and the Governor’s upcoming tax expenditure report should be carefully scrutinized in order to ensure that these evaluations are sufficiently rigorous.  One example of the types of criteria that could be used in a rigorous tax expenditure evaluation can be found in the study mandated by the “tax extenders” package that recently passed the U.S. House of Representatives.  For more on the importance of tax expenditure evaluations, and the components of a useful evaluation, see CTJ’s November 2009 report, Judging Tax Expenditures.

Ultimately, New Jersey’s addition to the list of states releasing tax expenditure reports means that only eight states now fail to produce such a report.  Those states are: Alabama, Alaska, Georgia, Indiana, Nevada, New Mexico, South Dakota, and Wyoming.  Each of these states should follow New Jersey’s lead.

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.

Read ITEP's New Report: Who Pays? A Distributional Analysis of Tax Systems in All 50 States

By an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy, according to a new study by the Institute on Taxation & Economic Policy (ITEP).

“In the coming months, lawmakers across the nation will be forced to make difficult decisions about budget-balancing tax changes—which makes it vital to understand who is hit hardest by state and local taxes right now,” said Matthew Gardner, lead author of the study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income.”

Nationwide, the study found that middle- and low-income non-elderly families pay much higher shares of their income in state and local taxes than do the very well-off:

-- The average state and local tax rate on the best-off one percent of families is 6.4 percent before accounting for the tax savings from federal itemized deductions. After the federal offset, the effective tax rate on the best off one percent is a mere 5.2 percent.

-- The average tax rate on families in the middle 20 percent of the income spectrum is 9.7 percent before the federal offset and 9.4 percent after—almost twice the effective rate that the richest people pay.

-- The average tax rate on the poorest 20 percent of families is the highest of all. At 10.9 percent, it is more than double the effective rate on the very wealthy.

“Fairness is in the eye of the beholder.” noted Gardner. “But virtually anyone would agree that this upside-down approach to state and local taxes is astonishingly inequitable.”

The “Terrible Ten” Most Regressive Tax Systems

Ten states—Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama—are particularly regressive. These “Terrible Ten” states ask poor families—those in the bottom 20% of the income scale—to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. “Virtually every state has a regressive tax system,” noted Gardner. “But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.”

The report identifies several factors that make these states more regressive than others:

-- The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate;

-- These states typically have an especially high reliance on regressive sales and excise taxes;

-- These states usually do not allow targeted low-income tax credits such as the Earned Income Tax Credit; these tax credits are especially effective in reducing state tax unfairness.

“For lawmakers seeking to make their tax systems less unfair, there is an obvious strategy available,” noted Gardner. “Shifting state and local revenues away from sales and excise taxes, and towards the progressive personal income tax, will make tax systems fairer for low- and middle income families. Conversely, states that choose to balance their budgets by further increasing the general sales tax or cigarette taxes will make their tax systems even more unbalanced and unfair.”

Implications for State Budget Battles in 2010

“In the coming months, many states’ lawmakers will convene to deal with fiscal shortfalls even worse than those they faced last year,” Gardner said. “Lawmakers may choose to close these budget gaps in the same way that they have done all too often in the past—through regressive tax hikes. Or they may decide instead to ask wealthier families to pay tax rates more commensurate with their incomes. In either case, the path that states choose in the upcoming year will have a major impact on the wellbeing of their citizens—and on the fairness of state and local taxes.”

A new report from Citizens for Tax Justice makes the case for a “performance review” system designed to evaluate the effectiveness of special tax breaks in achieving their stated goals. While CTJ's report primarily focuses on the importance of such a system at the federal level, most of its findings are equally applicable to the states.

The special breaks littered throughout state tax codes — or “tax expenditures,” as they are frequently called — are an enormous and often overlooked part of government’s operations.  Although the primary purpose of a tax system is to raise the revenue needed to pay for public services, every state, as well as the federal government, also uses its tax system to accomplish a variety of other policy goals. Encouraging job creation, subsidizing private industry research, and promoting homeownership are just a few of the countless ends pursued via special subsidies contained in state tax codes. Rather than having anything to do with fair or efficient tax policy, these tax credits, exemptions, and other provisions are actually much more akin to government spending programs — hence the term, “tax expenditures.”

A performance review system takes the commonsense step of asking whether these provisions are doing what policymakers intended of them. Under such a system, tax credits designed to encourage research and experimentation, for example, would be regularly examined to determine the amount of new research undertaken as a result of the credits. Shockingly, the vast majority of states, and the federal government, do not currently attempt to answer fundamental questions of this sort with any type of rigorous evaluation.

Among CTJ’s findings are:

— “Procedural biases,” such as the omission of tax expenditures from the authorization and appropriations processes, allow tax expenditures to slip by with a fraction of the scrutiny given to direct spending programs. State legislative systems requiring supermajority consent to “raise taxes” (or eliminate tax expenditures) are particularly biased in this regard.

— “Political biases,” such as the erroneous belief that government can take a “hands off” approach, or reduce its overall size by offering special tax breaks, also contribute to the current lack of oversight.

— A number of states have made strides in recent years to counteract these biases through performance reviews and other, similar means. Washington State’s efforts represent the most complete attempt at tax expenditure performance review yet to be undertaken in the United States. California, Delaware, Nevada, Oregon, and Rhode Island have also made attempts — with varying degrees of success — to enhance the level of scrutiny applied to their tax expenditures.

— The bleak state budgetary outlook makes the implementation of tax expenditure review all the more urgent. States, like the federal government, can no longer afford to deplete their resources with ill-advised and ineffective tax expenditures. By implementing a tax expenditure performance review system, states can pave the way for a reduction in tax expenditures by identifying those expenditures that are ineffective.

— A formal review system could also help to reconceptualize these provisions in the minds of policymakers, the media, and the public as spending-substitutes, rather than simply as tax cuts. This would further help reduce the rampant biases in favor of tax expenditure policy.

— The precise design of a tax expenditure review system is very important. States should be sure to include all taxes, and all tax expenditures within the scope of the review. Additionally, states should exercise care in selecting the criteria to be used in the reviews — Washington State’s criteria represent a good starting point from which to build. Other key design issues include choosing the appropriate body to conduct the reviews, timing the reviews to coincide with the budgeting process, allowing similar tax expenditures to be reviewed simultaneously, and attaching some type of “action-forcing” mechanism to the reviews so that policymakers must explicitly consider the reviews’ results.

— Tax expenditure reviews are necessary, though they may not be sufficient to correct for the biases in favor of tax expenditure policy. A tax expenditure performance review system can play a vital informational role either on its own, or alongside other, more aggressive tax expenditure control techniques such as sunset provisions or caps on tax expenditures’ total value.

Read the full report.

Read the 2-page summary.

Nevada Governor Jim Gibbons broke a 144 year old Nevada record this session by vetoing a total of 31 bills sent to him by the state's legislature. One of those vetoes was of a much needed $781 million revenue raising package that increased the state sales tax, vehicle registration fees, hotel room taxes, and two business taxes and fees. Since Nevada lacks an individual or corporate income tax, the options for progressive tax reform were fairly limited. Legislators should be praised, however, for recognizing that balancing the budget by slashing state services alone would create undue hardship for too many Nevadans. And they deserve even more praise for confidently overriding that veto in less than 24 hours in both the Assembly and the Senate.

The Governor's veto was widely anticipated, given his signing of a ridiculous and short-sighted "no-new-taxes pledge". At the veto ceremony, Governor Gibbons provided onlookers with plenty of rhetoric regarding the "job-killing" and "economy-crushing" attributes inherent to any tax increase. Interestingly, however, some have suggested that the Governor's position may be more political posturing than actual conviction, as he didn't appear to have launched much of a lobbying effort to prevent his veto from being overriden.

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report. For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers. Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions. Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions. Shockingly, the CBPP found that nine states publish no tax expenditure report at all. Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue. All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.

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.

As the fiscal contagion spreads among the states, policymakers are clearly casting about for ways to close large and growing budget deficits. In Nevada, Governor Jim Gibbons may be open to tax increases in light of a shortfall that is projected to reach $1.8 billion over the next two and half years, but he has also floated the idea of 'voluntary' payroll reductions of 5 percent. New Hampshire faces an approximately $600 million budget gap over the same period, with lawmakers weighing such options as selling state properties, legalizing gambling, or deferring needed payments to the state pension fund. Florida may have to confront an eye-popping deficit of $6 billion over just 18 months, driving elected officials to think about raiding a variety of trust funds and imposing a 4 percent across-the-board cut in agency budgets.

Of course, these three states have more in common than difficult days ahead. They also share a steadfast refusal to levy a personal income tax. Rather than continue to cast about for half-measures and temporary fixes -- or, worse, policies that would undermine working families' already precarious economic situations -- policymakers in states like Nevada, New Hampshire, Florida, Washington, and Tennessee need to acknowledge the elephant in the room and consider whether the tax policies that brought them to this point are the ones that will carry them to a better future.

Arizona voters wisely rejected Proposition 105, a proposal that would have placed a nearly insurmountable obstacle in the way of Arizona residents seeking to raise their own taxes through the referendum process.

Arkansas voters approved a measure to institute a state lottery. While the state could certainly use the additional revenue, Arkansans should be wary of funding their government through regressive revenue sources such as the lottery.

Maine residents rejected an increase in the alcohol and soda taxes to fund health care. While it's certainly a bad thing that these taxes are regressive (as well as unlikely to exhibit sustainable growth in the coming years), the ludicrousness of the fervent opposition this relatively minor tax created can be read about in this Digest article and this blog post.

Maryland residents also decided to secure additional revenues for their government via expanded gambling, in the form of 15,000 new slot machines. Check out this Digest article to learn about some of the problems with this proposal.

Missouri also attempted to increase its haul from gambling. Increased gambling taxes and the elimination of limitations on the amount of money one is allowed to lose were approved by voters this Tuesday. This Digest article explains how the proposal leaves much to be desired.

Minnesota voters decided to go through with a 3/8ths percent sales tax hike. While the environmental causes to which the funds will be dedicated are undoubtedly worthy, the regressive way in which voters decided to go about funding the projects (through the sales tax) is far from ideal.

Nevada residents voted to amend their constitution to require that all new sales and property tax exemptions be subjected to a benefit-cost analysis, and accompanied by a sunset provision that will force their reexamination in the future. While the proposal sounds good in theory, its requirements are relatively loose in practice. It will be up to Nevadans to carefully watch their representatives to ensure that the spirit of this law is adhered to. Learn more about this proposal here.

The attention paid to Nevada's ballot situation declined dramatically when a Proposition 13-style cap was kicked off the ballot due to election law violations. But voters will face another interesting tax-related proposal in November. Question 3, placed on the ballot by the Nevada legislature, seeks to amend the state's constitution to require that any proposed exemption to property taxes, sales taxes, and use taxes be demonstrated to have some social or economic purpose. Additionally, the proposal seeks to require that all new exemptions also be enacted with an expiration date, or "sunset provision".

The first of these requirements (that a social/economic purpose be demonstrated) will likely change very little in practice. The proposal is sufficiently vague on what constitutes a social/economic interest that the legislature should have no trouble demonstrating such an interest for any exemption it desires to enact.

The second requirement (that all exemptions be written with sunset provisions) may be a bit better in terms of practical effect. Of course, since no limit is placed on when any specific exemption must sunset, the legislature can easily bypass this requirement for all practical purposes by writing the legislation to sunset at some date absurdly far into the future. But the goal is good in concept. By requiring that all exemptions be periodically reexamined (or face expiration), parties receiving benefits through tax exemptions will be treated in a manner more analogous to those who receive government benefits through direct spending. Unlike budgetary outlays, which are usually revisited every year of two, tax exemptions are often tucked into the tax law and forgotten about, only to continue benefiting the parties in perpetuity.

So while Question 3 won't do too much to shake up Nevada tax policy, hopefully it will spark some useful discussion in the state about enacting more meaningful reforms.

The runup to the 2008 elections has given us plenty of reminders of why direct democracy is generally not the best approach to tax reform. In North Dakota, a typo in the language of a proposed tax cut may actually result in a tax increase for some families. In Nevada, the failure of supporters to properly file thousands of signatures in favor of an (ill-conceived) property tax cap resulted in that measure being thrown off the ballot.

But while both of these rather innocent mistakes are undoubtedly serious, neither is as serious as the rampant dishonesty often involved in the signature collection process. In Arizona, for example, a staggering 42% of signatures for a transportation ballot proposal this year were found to be invalid. In North Dakota, though problem wasn't quite as rampant, one signature collector this week was found guilty of faking potentially hundreds of signatures for their regressive income tax cut.

While there may be compelling reasons rooted in democratic theory for allowing citizens to take matters directly into their own hands, it is also important to remember the benefits of representative democracy. A badly written ballot proposal backed by thousands of fraudulent signatures is hardly an improvement over whatever flaws the legislative process may have. The problems with the initiative process illustrate that there are good reasons for having those who we have elected (and whose salaries we pay) writing our laws.

Backers of Anti-Tax Measure Admit It Will Result in Major Cuts in Education

Anti-tax advocates in Nevada once again appear to have failed in their efforts to get a Proposition 13-style property tax cap onto the ballot. This is the third time in four years that the former Assemblywoman pushing the initiative has come up short -- and her group has now started to grasp at some fairly interesting straws in an effort to reverse that trend.

After failing to collect the required number of signatures needed in 2004 and 2006, this time a District Court judge ruled that the signature collectors had failed to comply with election law procedures for some 8,000 of the signatures they collected. After removing these signatures, the initiative is again well short of the number needed.

The backers of the plan have appealed the ruling to the state Supreme Court, though that effort is unlikely to change much since the ballots are already being printed (minus the property tax cap), and insufficient time remains to re-print them. Though the group backing the plan originally planned to appeal the ruling on the grounds that the relevant Nevada election laws are not sufficiently clear, with things appearing so desperate the group is now claiming that the District Judge who invalidated the signatures has a conflict of interest in the case. The conflict? His wife works as a "Reading Program Coordinator" with a Nevada public school system, and, like many in the education field, could lose a portion of her income, or even her job, if this irresponsible proposal is enacted.

In the words of the proposal's supporters: "Since Judge McGee's wife obviously has an... economic interest in the subject matter in controversy (her income), and the Judge knows it, Judge McGee was required to reveal possible or potential conflict of interest".

So who is this judge's wife? She's worked in the Washoe County School District for 27 years. During the first 14 years she taught grades K-2, and for the last 13 she's been a reading coordinator. Unfortunately for the anti-taxers, she's actually been officially retired for 5 years, though she continues to work with the district on a very limited basis. Though they were wrong on the facts, the anti-tax group's implicit admission here that their plan could force valued school employees to be let go is quite revealing.

Of course, such a scenario is not at all far-fetched. Prop 13 in California has had a significant role in the recent budget troubles plaguing that state. If a similar property tax cap were enacted in Nevada without offsetting increases in other taxes, similar budgetary troubles (accompanied by spending cuts in areas such as education) should be expected there as well.

Earlier this week, the Institute on Taxation and Economic Policy (ITEP) released a brief report using IRS data and revealing that the most unequal states in the country also happen to be states that lack the type of progressive tax provisions that could reduce this inequality and raise badly needed revenue. The most unequal states either don't have a personal income tax or have one in need of improvement. Consequently, these states are left with tax systems that, on the whole, are unsustainable, inadequate, and unfair over the long-run.

The IRS data show that, in 2006, ten states -- Wyoming, New York, Nevada, Connecticut, Florida, the District of Columbia, California, Massachusetts, Texas, and Illinois -- have greater concentrations of reported income among their very wealthiest residents than the country as a whole. Yet, the tax systems in these states generally ignore that very important reality. Of those ten states, four lack a broad-based personal income tax and three either impose a single, flat rate personal income tax or have a rate structure that all but functions in that manner. Three do use a graduated rate structure, but of these, two have cut income taxes for their most affluent residents substantially over the past two decades.

Given this mismatch, it should not be too surprising that over half of these states face severe or chronic budget shortfalls. After all, the lack of an income tax, the lack of a graduated rate structure, or moves to make the income tax less progressive all mean that a state's revenue system will not completely reflect the concentration of income among the very wealthy and therefore will not yield as much revenue.

Case in point: New York. As the Fiscal Policy Institute observes, over the last 30 years, the state has reduced its top income tax rate by more than 50 percent. Most recently, in 2005, it allowed to lapse a temporary top rate of 7 percent on taxpayers with incomes above $500,000 per year. Today, the state must confront a budget deficit of more than $6 billion for the coming year and more than $20 billion over the next three. New York residents seem to understand the disconnect between the enormous disparities of wealth in their state -- where the richest 1 percent of taxpayers account for 28.7 percent of reported income -- and the state's fiscal woes. A poll released this week shows that nearly 4 out of 5 people surveyed support increasing the state's income tax for millionaires. Hopefully, Governor David Paterson is listening. As it stands, he'd rather cap property taxes than ensure that millionaires pay taxes in accordance with their inordinate share of New York's economic resources.