Film tax credits have received a lot of attention in recent days.  Just as Virginia Governor Bob McDonnell was signing the state’s first film tax credit into law, stories out of Iowa and New Jersey, as well as a New York Times article about film credits in Michigan, Texas, Pennsylvania and Utah, provided quite a few good reasons to be skeptical of these credits.

On Monday, Virginia Gov. Bob McDonnell excitedly signed into law the state’s new film tax credit, with sitcom star Tim Reid (from “WKRP in Cincinnati,” “Sister Sister,” and “That 70’s Show”) there to celebrate.  In order to justify enacting this giveaway for the film industry while Virginians are having to make due with reduced state services, Gov. McDonnell made the asinine claim the credit would produce a 1400% return on investment.  Economists everywhere have no doubt been laughing ever since.

Meanwhile, in New Jersey, fellow 2009 gubernatorial election winner Chris Christie took exactly the opposite approach in vowing to eliminate the state’s film credit in order to help balance the state’s budget.  While Christie clearly had his priorities dead wrong in choosing not to extend the state’s income tax surcharge on millionaires (61% of voters favor the surcharge), he has certainly hit the nail on the head when it comes to this wasteful giveaway.  Not even the cast of “Law and Order: Special Victims Unit” appears to have been able to sway him.

Stories this week from the Des Moines Register and New York Times provide some very timely evidence regarding the wisdom of Christie’s approach, as well as the folly of McDonnell’s.  In Iowa, the Register reports that new criminal charges have been filed in the state’s ongoing film tax credit scandal.  Specifically, three moviemakers have been charged with inflating the value of their expenses in order to increase their take from the state’s film credit program.  A $225 broom, $900 stepladder, and 16,000% markup on lighting equipment are among the bogus expenses claimed by the filmmakers. 

The steady drumbeat of discouraging news surrounding Iowa’s film tax credit makes clear that Virginia is facing an uphill battle when it comes to policing this program.

The New York Times this week explored a more specific attribute of state film tax credits: the steps states are taking to prevent movies they dislike from receiving taxpayer dollars.  In Michigan, a sequel to a cannibalism-themed horror movie that was supported by state film tax credits was rejected for subsidy this time around because the state’s film commissioner determined that “this film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light.”  Michigan is by no means alone in enforcing this standard.  Films made in Pennsylvania can be denied tax credits if the movie in question does not “tend to foster a positive image” of the state. 

Texas possesses a similar requirement, which apparently was used to prevent the makers of a film about the Waco raid from even applying for film tax credits. 

And in Utah, the state’s Film Commission director admitted to withholding credits from films that he wouldn’t feel comfortable taking the governor to see. Whether or not this rule of thumb varies with the theatrical tastes of the governor in office at the time remains to be seen.  Upon reading the Times story, one blogger with the Baltimore Sun went so far as to argue that these provisions show that “states want propaganda from filmmakers.”  They certainly beg the question: If state taxpayers subsidize the film industry, is it inevitable that state governments will censor movies before they're made?

Late last week, Pennsylvania legalized poker, blackjack, roulette, and other table games in an effort to fill the state’s budget hole without having to raise taxes.  Casino owners in the state have been waiting with great anticipation for this moment ever since slot machines were legalized in 2004.  Those owners also scored another win in that the new law allows them to make on-site loans to gamblers.  But with a plethora of gambling options already available next door in New Jersey and West Virginia – and more soon to come in Ohio and Maryland – Pennsylvanians shouldn’t be expecting their newly legal table games to bring in much in the way of tourism or new economic activity.

In this light, Governor Rendell’s continued insistence on a state income tax increase is very sensible.  If Pennsylvanians think that gambling will solve all their budget problems – they should think again.

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.”

Pennsylvania finally has a budget, just 101 days late.  But unfortunately, the budget doesn’t include the broad-based income tax increase that Governor Ed Rendell had supported.  And while Governor Rendell was able to convince legislators of the need for new revenue, the revenue sources that were selected leave much to be desired.

One major revenue source, for example, is a $190 million tax amnesty.  Tax amnesties are shortsighted and unfair – as we explained just a few weeks back.

Other revenue is projected to come from the legalization of poker, roulette, and other table games.  Given the seemingly endless delays surrounding the implementation of slot machine gambling in Pennsylvania, it’ll be interesting to see how long it takes before the first hand of poker is played.  The state’s Gaming Control Board is already on the record as saying it will need at least six to nine months just to prepare to regulate these new games. 

Given that significant gambling operations already exist nearby in New Jersey and West Virginia (and could soon be coming to Ohio), Pennsylvania shouldn’t be counting on its gambling expansion to produce much in the way of tourism.  And if casino industry lobbyists have it their way, and the current $20 million license fee is slashed to just $10 million, the $200 million revenue estimate attached to table gaming should be expected to plummet as well.  We wrote about the folly of gambling as a revenue source a few weeks back.

Pennsylvania also chose to increase its cigarette tax, lease state forests to natural gas exploration companies, impose a new tax on Medicaid managed-care organizations, and re-direct some current cigarette tax and gambling revenues into the state’s general fund.

Overall, it’s a pretty disappointing revenue package.  There are a few bright spots, however. The scheduled phase-out of the business capital stock and franchise tax was delayed (now is hardly the time to be cutting taxes), the state’s film tax credit was temporarily cut back, and the rainy day fund was wisely tapped.

All in all, it’s certainly a good thing that Pennsylvania chose not to address its budget shortfall with spending cuts alone…but the deal that was reached leaves more than a little room for improvement.

And then there was one.  A full eleven weeks after the start of its fiscal year, Pennsylvania remains the only state in the union without a budget, as members of the legislative leadership and Governor Ed Rendell continue to negotiate the details of what is shaping up to be a roughly $28 billion spending plan.  (Yes, we know Michigan doesn’t have a budget either, but its fiscal year doesn’t start until next month.)

Still, given what is known about the latest iteration of the Legislature’s proposed FY 2010 budget, perhaps it is better that policymakers do not rush forward to enact it.  The Pennsylvania Budget and Policy Center (PBPC) has expressed concerns that the proposal “postpones Pennsylvania’s budget problems rather than solves them” because it relies on “overly optimistic revenue projections and one-time revenue sources.” These are concerns that Governor Rendell seems to share, at least in part. One example of the wishful thinking in the proposal is its reliance on gambling revenue, which has lately proved to be an unpredictable revenue source for many states. (See last week’s Digest article on gambling revenues.) Even worse, as other observers have noted, the proposed budget depends heavily on reductions in important public services, such as pre-kindergarten and after-school programs, as well as neo-natal care.

To be sure, Pennsylvania is not alone in facing serious budget problems.  However, unlike their counterparts in nearby New York, New Jersey, and Delaware, legislators in the Keystone State have refused to countenance an increase in broad-based taxes, such as the income tax increase put forward by Governor Rendell earlier in the year.  Little wonder, then, that they have to resort to spending cuts, questionable revenue estimates, and one-time sources of funding to try to bring the state’s books into balance.

For more on Pennsylvania’s fiscal crisis and on meaningful reforms the state could enact to generate additional revenue, visit PBPC’s informative web site.

There’s a lot that can go wrong when a state turns to legalized gambling as a source of revenue.  This is a fact that Kentucky, Pennsylvania, and others should keep in mind during their continuing efforts to push for expanded gambling as a solution to their budget woes

For starters, a poor economy, opposition by local residents, legal challenges, and a number of other factors can delay the opening of newly legal gambling establishments.  And without functioning gambling venues, there’s no money for the state.  Recent stories out of Maryland and Pennsylvania demonstrate the very real nature of this threat.  Additionally, recent polling done in Illinois suggests that opposition to gambling at the local level – fueled in part, no doubt, by the Not-In-My-Back-Yard (NIMBY) syndrome – could cause similar delays there.  And legal challenges in Ohio indicate that the Buckeye state could be in for delays in gambling implementation as well.

But even after a state manages to get its gambling operations up and running, the revenue stream produced by gambling may not be as lucrative as advertised.  A recent New York Times story details the degree to which gambling revenues (from casinos, racetracks, lotteries, etc) are disappointing states this year.  The most obvious culprit in this case is the slumping economy, though some experts believe that increasing competition for gamblers both between states, and within states – known as “market saturation” – may be at least partially to blame.  Worries about market saturation have been on full display in Ohio, where racetrack owners are on edge about the effect that casino legalization (to be voted on by Ohioans this November) could have in cutting into their profits.

In other cases, it may simply be the case that gambling just isn’t as popular as first expected.  The perceived need among many states to legalize slot machine gambling as a means of drawing gamblers back to struggling racetracks is evidence of this problem.  Unfortunately, the failure of this method in Indiana has drawn into question the wisdom of this revenue-raising strategy as well.

Other methods, such as loosening the restrictions on betting limits or alcohol sales (which were originally imposed to secure support for gambling from reluctant lawmakers) are being tried as well.

Ultimately, the fact is that gambling is far from a fiscal panacea for the states, and given the tendency for implementation delays, is exceedingly unlikely to result in much revenue to fix the current round of state budget shortfalls.  Take a look at this ITEP policy brief for more on the gambling issue.

It's one thing for the federal government to allow a one-time amnesty for Americans who've hid their income from the IRS in offshore accounts. (See related story.) The "stick" is effective (prison) and the "carrot" is not overly generous (since these Americans will pay taxes, interest, and penalties).

But lately several states are providing their own tax amnesties that are very different and very misguided. According to a recent article in State Tax Notes (subscription required), the thirteen state tax amnesties already conducted or promised this year ties the 2002 record for most amnesties offered in one year.  Assuming that DC Mayor Adrian Fenty signs the budget (which contains a tax amnesty) that was recently passed by the DC Council, that record will be broken.  Pennsylvania and Michigan, however, still have a chance to avoid adding to the list of states enacting these short-sighted measures. Amnesties have been proposed within each state's legislature.

As we've argued before, allowing delinquent taxpayers to pay the taxes they owe with little or no penalty is unfair to those diligent taxpayers who paid their taxes on time.

This unfairness is compounded greatly if the interest owed on the late tax bill is reduced, or even waived entirely, as was done this year in Delaware.  Waiving the interest owed on late tax bills essentially means that delinquent taxpayers are granted an interest-free loan by the state, for no reason other than the fact that the state is now desperately in need of money. Had all taxpayers been aware of the possibility of this interest-free loan, the rate of noncompliance would undoubtedly have skyrocketed. 

Repeatedly offering amnesties, as is increasingly becoming the norm, harms the ability of states to enforce their tax laws.  With record numbers of tax amnesties having been offered in the last seven years, delinquent taxpayers can usually assume that they'll be offered an easy way out eventually -- if only they're patient enough.  As one revenue official from Kansas recently put it, "if you have amnesties too often, you're literally training taxpayers not to pay."

While some states continue to believe that they can weather the current fiscal crisis with the budgetary equivalent of a rubber band, a paper clip, and some chewing gum -- yes, we're looking at you, Kentucky -- others, such as Pennsylvania and Oregon, recognize that the deficits spawned by the national recession should, in turn, spur them to shore up their tax codes.

In the Keystone State this past week, Governor Ed Rendell indicated that he would back an increase in the state's personal income tax rate from 3.07 to 3.57 percent. After all, as the Pittsburgh Post-Gazette observes "difficult times require tough action."

On the other side of the country, Oregon legislators gave final approval to changes in their corporate and personal income taxes that are expected to yield more than $700 million in additional revenue; those changes are expected to be signed into law by Governor Ted Kulongoski. Among the changes pending in Oregon are the creation of two new (albeit temporary) top income tax brackets with rates of 10.8 and 11 percent and increases in the state's corporate minimum tax.

For more on the need to raise additional revenue in Pennsylvania, see this statement from the Pennsylvania Budget & Policy Center and an array of other organizations.

Two thousand nine is scarcely a month old, yet it appears that Pennsylvania Governor Ed Rendell is already backing the wrong horse for the second time this year. In mid-January, Rendell's sporting hopes were dashed, when his beloved Eagles failed to advance beyond the NFC Championship game for the fourth time in five recent tries. Now, he's on the wrong side of history again, announcing last week that his forthcoming budget for FY 2009-2010 will not contain any increases in sales or income taxes, despite a projected budget deficit of some $2.3 billion. Instead, he expects that a combination of budget cuts and federal fiscal relief funds will be sufficient and, in his own words, he doesn't want to hear any "whining" about it.

Of course, as Sharon Ward, the Executive Director of the Pennsylvania Budget and Policy Center (PBPC) has recently explained, this is precisely the wrong approach for states to take in a recession. She notes that "Pennsylvania should actually be spending more, not less, to jumpstart the ailing economy" and argues in favor of tax policy changes that would generate additional revenue while making the state's tax system more fair, such as taxing dividends or closing corporate tax loopholes through the use of combined reporting.

Fortunately, Rendell's opposition to a needed tax increase may turn out to be as effective as the Eagles' attempts to stop Larry Fitzgerald. House Appropriations Committee Chairman Dwight Evans said this past week that he believes that "there will be some sort of a tax increase in order to solve this problem," though it may be the last resort.

For more on the options Pennsylvania lawmakers could use to generate additional revenue, see these recommendations from the PBPC.

As the vast majority of state governments stare down budget shortfalls, new ideas about how to responsibly and fairly fill those gaps should receive an enthusiastic welcome. A new report from Good Jobs First, entitled Skimming the Sales Tax, does exactly that by revealing that states are currently giving away over $1 billion through "vendor discounts" or "dealer collection allowances" that reduce sales taxes.

Vendor discounts allow retailers to legally keep a portion of the sales tax revenue they collect as compensation for the costs involved in collecting and remitting the tax. Twenty six states currently provide retailers with such compensation, amounting to a total of over $1 billion in annual revenue losses for those states.

The policy prescription in many states is fairly clear. While there may be room for debate over whether any compensation is warranted, what is not in question is that there should be a sensible limit on the maximum amount that any one business can receive via this practice. As author Philip Mattera points out, "the main expenses that retailers incur with regard to sales taxes, especially software programs to track them, are fixed costs that do not rise in tandem with growth in receipts."

Those states without such a limitation in many cases forfeit quite substantial amounts of revenue through vendor discounts. Illinois, for example, loses over $126 million annually due to the practice. Texas, Pennsylvania, and Colorado each lose in the neighborhood of $70 - $90 million per year. Thirteen of the twenty six states offering vendor discounts do not cap the amount any individual retailer can claim. In addition, five states that do impose limits on maximum compensation have set those limits at seemingly excessive levels, ranging from $10,000 to $240,000 per retailer.

For state-by-state details on existing vendor compensation practices, as well as other ways in which retailers are being subsidized through the sales tax, see the report here.

A number of states are considering funding transportation infrastructure with "direct pricing" on the use of roads -- e.g. by increasing the prevalence of tolling and instituting taxes on "vehicle miles traveled". If coupled with relief for low-income drivers, direct pricing has the potential to adequately and fairly fund transportation while at the same time creating incentives to reduce driving and its corresponding ills (e.g. traffic congestion, environmental damage, and excessive wear-and-tear on the roads).

But a new development in the already drawn-out debate over Pennsylvania's plan to institute "direct pricing" (i.e. tolls) on its Interstate 80 highlights some serious equity issues involved in making the transition to this form of transportation finance.

A national trucking organization this week announced its opposition to the tolling plan, instead offering its support to a ten cent gas tax hike to raise the money Pennsylvania needs. The reasons for their opposition provide some very useful insights into the equity issues associated with a transition to a direct pricing regime.

While tolling every road could distribute the obligation for funding transportation across all drivers, singling out specific roads for tolls disproportionately affects those people who regularly travel on those roads. After all, these people continue to pay gasoline taxes, vehicle registration fees, inspection fees, and various other charges dedicated to funding transportation. While the revenue from all of these other taxes and fees is being sent all over the state to fund various projects, drivers who rely primarily on tolled roads for their commute (as well as businesses who rely on those roads to transport their goods) are forced to pick up their own tab at the tollbooth. As the trucking industry argued, what the state needs are "alternatives that make all Pennsylvanians responsible for paying for our roads, not just a certain segment."

Pennsylvania has to some extent attempted to minimize the impact of these tolls on frequent users of the road by proposing to let drivers with the E-ZPass electronic toll collection system installed in their cars travel some short distance before tolling kicks in. But this benefit would not help those who take longer trips down I-80, nor would it help the trucking industry, which is excluded from this benefit. Much of the responsibility for paying tolls would therefore fall on out-of-state travelers and trucking companies. That is certainly appealing to Pennsylvania lawmakers seeking to please their constituents.

But some of the burden would also fall on those living closest to I-80. And in any case, is there any reason why I-80 travelers (Pennsylvania residents or otherwise) in general should be contributing more to transportation than users of other roads? As tolling continues to be gradually implemented in a piece-meal fashion, look for more equity concerns of this sort to arise.

A couple of interesting articles out of Pennsylvania recently highlighted a disturbing feature in local property tax assessments: individual property owners are being singled out by localities for reassessment of their property in order to boost tax collections. The practice, done through tax appeal boards traditionally used by property owners to argue for lower assessments, provides a glimpse both into the flawed nature of Pennsylvania's assessment system, and into the unfortunate state in which this system has left Pennsylvania localities.

Aside from when a new home is built, or when major renovations on an existing home are completed, state law specifies that a property can only be reassessed for property tax purposes as part of a locality-wide reassessment of all properties. But reassessing all properties can be a daunting task for a locality, as evidenced by the fact that some localities haven't reassessed in over 30 years.

In the period between reassessments, properties that appreciate in value at an above-average rate can see significant tax benefits. And while "spot reassessments" of specific properties are technically not permitted, localities are allowed to request a "reverse appeal" of the original assessments of specific, apparently "under-assessed" properties. This practice has produced hundreds of millions of dollars in extra tax revenues for many localities (drawn mostly from people whose property tax bills were legitimately too low) though the piece-meal fashion in which those revenues have been raised creates serious inequities between people singled out for "reverse appeals", and those who continue to fly under the radar.

Pennsylvania legislators recently mustered overwhelming support for a bill ending this practice, though the Governor vetoed the bill on the grounds that it would significantly reduce localities' ability to raise revenue. The legislature likely has the support it needs to override such a veto should they try again, but some policymakers are hoping to take things a step further and use this unsettling practice as a springboard for enacting a more comprehensive, frequent, and rational property reassessment system. What precisely that will involve is unclear, though some local officials have already suggested that mandates for more frequent property reassessments should be coupled with state aid to cover the inevitable administrative burden of such a policy change.

Policymakers in Pennsylvania seem bent on cutting taxes before the year is out... but how and for whom remains to be seen. After proposing his own Protecting Our Progress tax rebates earlier this year, Governor Ed Rendell last week suggested he could support a plan, put forward by Senate Republicans, that would expand eligibility for the state's so-called tax forgiveness credit. At present, single people with incomes up to $6,500 and married couples with incomes up to $13,000 receive a tax credit that completely eliminates any tax liability. (Individuals and families with slightly higher incomes receive credits that reduce, but do not eliminate, their tax liabilities.) The Senate Republican plan would ultimately raise those thresholds to $8,500 and $17,000 respectively. There's a catch, of course... the Senate Republican plan also calls for substantial business tax breaks, such as increasing the state's net operating loss carry forward and giving greater weight to sales in the state's corporate income tax apportionment formula. For more Pennsylvania fiscal information, visit the Pennsylvania Budget and Policy Center.

The governors of Illinois and Pennsylvania are each seeking to follow the feds' lead and stimulate their economy with tax breaks. Governor Rendell's plan in Pennsylvania is to rebate up to $400 to low-income families with children, with the precise amount of the rebate being determined by the number of parents, number of children, and income earned in the family. In Illinois, Governor Blagojevich's plan is similar to Rendell's proposal in that it is only available to families with dependent children, though it differs in that its income eligibility thresholds are much higher: single-parent families earning up to $75,000, and two-parent families earning $150,000 will be eligible for the full $300 per child credit. Blagojevich's plan could be made more effective and less expensive by lowering the income limits to make these credits available primarily to the low and middle income families who would be most likely to immediately spend tax rebates on everyday needs.

Fortunately, both of these stimulus proposals are refundable, meaning that families receive the money regardless of how much, if any, state income tax they paid. This is an extremely important component of any fair credit or rebate since even though those in the greatest need often pay no income taxes because of their low incomes, they do pay huge portions of their incomes in regressive sales and property taxes.

One additional flaw with each plan is that low-income individuals without children will see no benefit. In terms of both stimulating the economy and assisting those in need, both of these plans could be improved by extending the rebates/credits in some form to individuals without children. This could be done very easily in Illinois by lowering the income eligibility criteria and using the resulting savings to assist low-income, childless individuals.