The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

It's encouraging that the South Carolina Taxation Realignment Commission (TRAC) is interested in broadening the state sales tax base and lowering the overall tax rate.  Nonetheless, testimony submitted by ITEP late last week makes clear that the specific proposal being considered by the Commission is seriously flawed in at least two ways.

The first flaw is what ITEP describes in its testimony as a "worrying focus on taxing the 'necessities' that represent a large share of low-income families’ spending."  While low-income families will be helped by the lower overall sales tax rate proposed by the TRAC, the new taxes those families will face on groceries, residential utilities, and prescription drugs may outweigh the benefits they see from the lower rate.  Lessening the impact of this change through the enactment of a state EITC or some other type of tax credit is of vital importance if South Carolina is to avoid pushing its impoverished residents deeper into poverty.

The second flaw relates to the TRAC's insistence that its proposal be revenue neutral.  South Carolina tax revenues — like those in most states — have taken a serious blow as a result of the economic recession.  Large-scale tax base-broadening of the type being discussed by TRAC would raise more than enough revenue to substantially lower the sales tax rate while simultaneously bolstering the state's weakened revenue streams. 

Refusing to pursue this latter goal would be a serious mistake.  And moreover, as ITEP's testimony points out, estimating the amount of revenue that can be raised by taxing a slew of previously untaxed purchases is much easier said than done.  As a result, it will be very difficult for lawmakers to know precisely what tax rate would be needed to ensure true revenue neutrality.  At the very least, this difficulty should encourage a more cautious approach to revenue neutrality than what the TRAC appears interested in pursuing.

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.

South Carolina's Taxation Realignment Commission  (TRAC) was established over a year ago and has been meeting since September. Commissioners were charged with studying the tax structure with these instructions: "The goal of TRAC, and ultimately of the state’s tax structure, is creation of a system that enhances the state’s reputation as a '…optimum competitor in efforts to attract business and individuals to locate, live, work and invest…' in South Carolina."

The Commission has spent much of its time studying sales tax exemptions. Last week the Commissioners approved a proposal that would eliminate a series of sales tax exemptions including those for electricity and water, and would also expand the sales tax (albeit at a reduced rate) to include groceries and prescription drugs. The Commission's proposal includes a reduction in the overall sales tax rate so that the net fiscal impact of the base broadening measures is revenue-neutral.

A broad-base, low-rate tax is often good policy, but applying the tax to so many basic necessities is cause for alarm. As ITEP noted last week, "It's hard to find items that you could tax that would have more of a regressive impact than groceries and utilities."

The revenue-neutral nature of the proposal is also cause for concern. John Rouff from South Carolina Fair Share recently addressed that issue, saying, "Revenue neutrality is not what we need today. We have a state that is facing a dire economic crisis."

The Commission is expected to make a final decision in September about whether to send the proposal to the Legislature for their approval.

State lawmakers in Kansas, Florida, Georgia, South Carolina, and at least ten other states have attempted to advance tax cuts — frequently targeted at businesses — as a means of stimulating their economies.  In response to these types of proposals, this week the Center on Budget and Policy Priorities (CBPP) released a short report pointing out the futility of attempting to stimulate state economies by cutting taxes. The report explains:

“State balanced-budget requirements prevent states from stimulating their economies by cutting taxes. If a state cuts a tax, it generally has to make an offsetting cut to expenditures for a program or service in order to maintain balance. This spending cut is likely to reduce demand in the state just as much as the reduction in taxes may stimulate demand.  It is at best a zero-sum game, where the gains in one area are offset by the losses in another.”

Against this backdrop, there is little question that the proposals described below (as well as the proposal described in the Minnesota story from a couple weeks back) are doomed to fail, despite their political popularity among some groups.

On Tuesday, Florida Governor Charlie Crist used his State of the State address to voice his support for a 10-day sales tax holiday and a sizeable cut in corporate taxes.  The corporate tax cut Crist is seeking could include a one percent reduction in the state’s corporate tax rate.  Both of these proposals would force a reduction in state spending at the worst possible time.  And sales tax holidays, of course, have long been recognized by serious observers as little more than political gimmicks.

In Kansas, the state House of Representatives has passed an expansion of a tax break aimed at boosting employment in the state.  Of course, the revenue loss associated with expanding this break, were it to become law, would only make the legislature’s job of producing a balanced budget even more difficult.  And, as the CBPP explains quite well, the larger cuts in government services that would be needed to finance this cut would effectively cancel out any purported economic gains.

In Georgia, an op-ed by Sarah Beth Gehl of the Georgia Budget and Policy Institute (GBPI) points out the folly of another proposal that claims to offer help for the state’s economy.  Specifically, the proposal would eliminate the state’s corporate net worth tax.  As Gehl points out, “there is no evidence that ending this tax will incite businesses to come to Georgia.”

Some South Carolina lawmakers are making use of a similar logic, though their focus is on a somewhat longer-term initiative.  Their plan would phase-out the corporate income tax over the course of 20 years, with the hope of improving the state’s “economic competitiveness.”  An editorial published in The State this week points out the flaw in this plan:

“The theory is that the tax breaks will entice people to start and expand businesses and move jobs to South Carolina. ... But there's a limit to how much difference a lower tax can make when there's no market for a company's products or services. And the stimulative value is particularly questionable when the tax is relatively low to start with. That's why we never have been convinced that supply-side economics can work at the state level.”

New details have just surfaced regarding the deal between South Carolina and Boeing that we discussed in the Digest last week.  It turns out that the subsidy package Boeing was able to extract from the state’s taxpayers will be at least twice as large as was first reported.  In total, over $900 million will be given to Boeing. 

Put another way, the state will be giving Boeing an “incentive package” large enough to cover the entire cost of building its plant, with at least $150 million in benefits left over. 

State residents should keep this package in mind the next time South Carolina lawmakers proclaim the virtues of “free markets” and “limited government” as part of their anti-tax platform.

The details of an extremely generous subsidy package given by South Carolina to Boeing, Inc. have rightly garnered a lot of attention.  The entire package is valued at around $450 million, and will require the cash-strapped state to borrow $270 million in order to help fund the construction of Boeing’s new facility in North Charleston. Among other things, the package would assess Boeing’s in-state property at a mere 4% of its value for property tax purposes (a fact that may irk other industrial taxpayers who are assessed at a 10.5% rate), promises the company that its tax rate won’t rise during the next 30 years, and allows the company to retain half of what it ultimately does “pay” in property taxes, if it uses the money for site improvements.  

But an extremely detailed study of tax incentives in Pennsylvania, released by Good Jobs First this week, should cause South Carolina policymakers to think twice about their “smokestack chasing” ways.  The report explains, among other things, that state tax bills are generally of little importance in company location decisions, and rarely can such breaks encourage a company to be truly loyal to a state and its workforce (as demonstrated recently in North Carolina).  As a result, selectively reducing taxes for certain companies in order to attract them to a state is a “low-impact but high cost” strategy.  Instead, Good Jobs First provides a number of recommendations for encouraging economic growth in much more sophisticated ways – such as improving workforce training policies, or taking targeted, careful steps to maximize the growth potential of young, small, and local businesses.

The full study can be found here.

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.

A little over a year ago, we told you about a ridiculous law in South Carolina that provided for a sales tax "holiday" on purchases of handguns, rifles, and shotguns (later ruled unconstitutional for technical reasons, though only after the holiday had already taken place).  Little did we know then that the idea would actually catch on.  Louisiana enacted a similar "holiday" last month, upping the ante by exempting not only handguns, rifles, and shotguns, but also bows, crossbows, hunting knives, arrows, ammunition, rifle scopes, holsters, and much more.  Unbelievably, the idea is reportedly receiving attention in Texas and Kentucky as well.

The Louisiana holiday is scheduled to occur each year on the first consecutive Friday through Sunday in September.  During that weekend, neither state nor local sales taxes will be collected on a variety of items the legislature has declared worthy of being included in its "Second Amendment Holiday." 

But it's not hard to imagine how many of those exemptions will pose serious administrative problems.  With some exempt items, such as tree stands, there seems to be little room for confusion.  In other cases however, the state has decided to exempt a variety of multi-purpose items based on whether they were designed, marketed, or even simply purchased for use while hunting (e.g. some items must be designed with hunting in mind, while others need only be purchased by somebody with the intent to hunt).  Items falling into this category include off-road vehicles, animal feed, boots, bags, binoculars, chairs, belts, and various types of camouflage clothing. 

Apparently, according to this list of tax-exempt items, you can look at a bird through tax-free binoculars, but only if you intend to kill it.  Ensuring that these items are really purchased by individuals with "Second Amendment" intentions will no doubt prove impossible.

The bill's official fiscal note hints at a further complication involved with this holiday.  Specifically, it explains that the state will pay retailers $25 for each cash register they re-program to calculate "Second Amendment" items as being tax-free.  On top of that, the state will pay $25 more when the register is re-programmed, back to normal, at the end of the holiday.  Official estimates are that it could cost Louisiana taxpayers up to $100,000 to help retailers make the necessary modifications.  Since the holiday is only expected to result in $263,000 per year in tax savings, this $100,000 cost is not a trivial concern.  And keep in mind, Louisiana taxpayers not purchasing weapons will be helping to pay this $100,000 tab to benefit their soon-to-be well-armed neighbors.

The inevitably complicated nature of sales tax holidays is just one of their many flaws -- as explained in this ITEP Policy Brief.  But despite all their problems, at least typical "back-to-school" sales tax holidays can be interpreted as a misguided attempt to make life easier for families with school-age children.  When it comes to these "Second Amendment Holidays," however, it's hard to see what exactly lawmakers are trying to gain, other than a pat on the back from the NRA.

So-called sales tax holidays, normally two- or three-day events that encourage shoppers to purchase back-to-school items tax-free, are bad policy for a variety of reasons. The holidays are poorly targeted, costly, and lull legislators into thinking that they've done something substantial to help reduce the regressivity of sales taxes.

The bottom line is that given the choice between targeted sales tax reform that takes into account one's ability to pay and a three-day sales tax holiday, lawmakers should always opt for targeted reform.

Last weekend a handful of states from Alabama to New Mexico held their sales tax holidays. (The Federation of Tax Administrators keeps a complete list of holidays here.) But because of the recent economic downturn, some legislators and economists are questioning the wisdom of not collecting sales taxes a few days a year.

Former chairman of South Carolina's Board of Economic Advisors Harry Miley certainly has his doubts about the effectiveness of sales tax holidays. He says that shoppers don't need incentives to go back-to-school shopping, and the cost to the state is quite high. He says, "The idea of a tax holiday for essential items doesn’t make any sense to me." For more on why sales tax holidays aren't all they are cracked up to be, see ITEP's Policy Brief.

You know a state has some problems when it claims it cannot even afford to conduct a study to determine whether its revenue system is adequate and effective. That's what happenedearlier this week in South Carolina, where it appeared that legislation to create a special panel to study the state's tax structure might get derailed. Lawmakers found it difficult to resolve the panel's membership and whether the costs associated with the panel (staffing, travel, etc.) could actually be paid for.

On Tuesday the legislature decided that the state could, in fact, afford to conduct a study to determine how it should raise revenue. Unfortunately, the effort is set to fail before it even begins. Ultimately both the House and Senate approved the creation of the 11-member board, but House Democrats won't be allowed to appoint a panel member. The panel is supposed to study the so-called "Fair Tax," a proposal that would eliminate state personal and corporate income taxes and replace that lost revenue with huge sales taxes shouldered primarily by low- and middle-income people. Incredibly, recent controversial changes to the state's property tax won't be discussed before the panel.

It's safe to assume that there will be a special legislative session in Kentucky this summer. After all, the Blue Grass state is expected to face a billion dollar shortfall for the fiscal year starting July 1. Governor Beshear claims

he hasn't committed to calling back the legislature or decided what topic he would even select for a special session, but everyone knows a shortfall this large isn't going away without further action. So a flurry of proposals are being discussed from progressive income tax reform to increased gambling and even the so-called "fair tax."

The infamous "fair tax" legislation, which proponents are pushing all over the country, would eliminate corporate and individual income taxes, replace the lost revenue with increased sales taxes on a wide range of services, and eliminate most current sales tax exemptions. Before going too far down this path,

Kentucky legislators should take a moment to look at how that same proposal has faired in other states just this year.

Missouri, "fair tax" legislation passed the House of Representatives but went nowhere in the Senate. An ITEP analysis found that this proposal would raise taxes on middle-income Missourians and require a much higher sales tax rate than advertised.

A similar fate is expected in South Carolina where similar legislation has been introduced in the House. Advocates in South Carolina are hopeful that the legislation won't get very far.

Kentucky lawmakers should quickly jump off the failed "fair tax" bandwagon and instead look for ways to improve their state's tax structure while also increasing state revenue.

As state policymakers craft their budgets for the upcoming fiscal year, they must confront a pair of daunting challenges, one fiscal, the other economic. The budget outlook for the states is, at present, the most dire in several decades. In this context, then, states must find ways to generate additional revenue that create neither additional responsibilities for individuals and families struggling to make ends meet nor additional distortions in the economy as a whole.

For nine states -- Arkansas, Hawaii, Montana, New Mexico, North Dakota, Rhode Island, South Carolina, Vermont, and Wisconsin -- one straightforward approach would be to repeal the substantial tax breaks that they now provide for income from capital gains. In tax year 2008 alone, these nine states are expected to lose a total of $663 million due to such misguided policies, with individual losses ranging from $10 million to $285 million per state. A new ITEP report explains that repealing these tax preferences would help states reduce their large and growing budgetary gaps, enhance the equity of their current tax systems, and remove the economic inefficiencies arising from such favorable treatment.

This report explains what capital gains are, how they are treated for tax purposes, and who typically receives them. It also details the consequences of providing preferential tax treatment for capital gains income for states' budgets, taxpayers, and economies in nine key states. Lastly, it responds to claims about both the relationship between capital gains preferences and economic growth and the role capital gains taxation plays in state revenue volatility. (Appendices to the report provide detailed state-by-state estimates of the impact of repealing capital gains tax preferences.)

Read the report.

The budget picture in South Carolina is grim. The State's Comptroller General said recently that corporate income tax collections are down 57 percent, sales tax collections are down by 18 percent, and individual income tax collections are down nearly 3 percent since July. State agencies have reportedly reduced their own budgets by $600 million to take into account reduced revenues.

According to the Center on Budget and Policy Priorities forty-two other states now face a budget shortfall. Policymakers in other states have come forward with a variety of proposals to deal with their state's crisis. For example, New York Governor David Paterson recently asked for federal money to assist his state and Arizona Governor-Elect Jan Brewer won't take tax hikes off the table.

Governor Mark Sanford's answer to South Carolina's budget woes are in left field and across the street compared to these strategies.

In fact, Governor Sanford has publically argued against providing federal aid to the states and just this week he released a budget busting list of tax changes that include eliminating the state's progressive corporate income tax and introducing an optional single rate personal income tax. While some other items on his list would raise some revenue (raising the state's regressive cigarette tax, eliminating sales tax holidays, reducing business tax "incentives"), overall, it's pretty clear that Governor Sanford's solution is to dig the revenue hole deeper.

To the cynical among us it appears that Sanford may be gearing up for 2012. He was recently elected chairman of the Republican Governor's Association and is clearly attempting to beat the "supply-side" drum -- never mind that the notion of supply side economics has been debunked repeatedly.