With budget deadlines looming, many states felt that there were no alternatives to balancing the budget other than raising taxes or adding new ones. More than half of all states were considering significant tax changes to fill gaping holes… What a difference a few weeks and some angry taxpayers make.
New Jersey recently “found” more money than it had hoped for after setting up an amnesty program. Other states are filling holes by trimming budgets.
Consider Pennsylvania. Governor Ed Rendell had indicated that a 10% increase in income tax would be necessary to head off a budget crisis. It was all but settled until yesterday when a Democratic budget proposal yanked $1.3 billion in funding for some colleges and student-loan program. The result is a $29.1 billion budget offered by Rep. Dwight Evans (D – Phila), chairman of the Appropriations Committee. And Governor Rendell may be on board. Republicans oppose the plan, offering their own version of a bill which makes deeper spending cuts but reportedly lacks about $1 billion of needed revenue. Nonetheless, both parties have agreed that a tax increase isn’t necessarily the answer.
And despite concerns that talks of a tax increase may resurface next year, Illinois managed to pass a budget this week that results in no additional tax. Governor Pat Quinn had indicated that a 50% tax increase would be necessary to keep the state going but this week, the Senate and House voted overwhelmingly to borrow funds and delay other spending. The result is a budget that, for now, keeps Illinois out of a deficit and allows taxpayers a reprieve in tax increases.
Does this mean that tax increases are off the table? Not at all. But it is proof that legislators are listening to taxpayers – the answer doesn’t always have to be “raise taxes.” Other states – from North Carolina to Oregon to California – should take notice.
When New Jersey Governor Corzine and the legislature were scrambling to find ways to fill the holes in their budget, it was clear that they wanted to utilize “sin” or “vice” taxes as much as possible. Unlike income taxes which affect everyone, sin taxes only affect people who engage in certain behaviors. The behaviors considered “sinful” vary from state to state but generally include drinking and smoking. New Jersey, however, added another vice to the list: gambling.
Yes, gambling. But not the Atlantic City quarter slots kind of gambling (yes, I said quarter slots can you tell that I’m not a risk taker?).
A more sinful, sinister kind of gambling: playing the lottery.
Beginning in 2009, New Jersey will begin taxing lottery winnings – something the state has never done before – at a maximum rate of almost 11%. I know what you’re thinking: “taxgirl, beginning in 2009? Aren’t you a little late to the party? It’s July.”
Yes, I know it’s July. The law took effect July 1 but lottery winners are taxed on the winnings retroactively to January 1. That has some lottery winners furious.
But players dollar scratch cards can relax a little: only prizes of more than $10,000 will be affected. Tax rates will begin at 1.4% and increase to 10.8% depending on the amount of winnings. Other tax provisions based on filing status, etc., will apply.
While lottery winners are outraged over the new law, including recent winners of the Mega Millions jackpot, the state is fairly confident that the law will stay “as is.” The reality is that lottery winners make up a small percentage of the state’s voters taxpayers and it’s not a cause that many citizens will rally around. The state is betting (pun completely intended) that a tax increase on the beneficiaries of what’s considered a stroke of luck will not earn much sympathy from taxpayers who are already concerned about their own tax burdens.
What do you think? Fair or no?
New Jersey wants your money. And they’re willing to waive a few penalties and interest to get it.
The Division of Taxation a new tax amnesty program. The program will run from May 4, 2009 to June 15, 2009 and will apply only to returns due on or after January 1, 2002 and before February 1, 2009. It will not apply to any taxpayer who is currently under criminal investigation or facing charges for tax evasion.
The deal is this: if you are willing to settle up, the State will waive all penalties, referral cost fees and one-half of the balance of the interest that remains due as of May 1, 2009. The catch is that you have to pay all of the tax that you owe plus half of the interest before the end of the amnesty period. You must also be compliant, meaning that you must have filed and paid any other tax obligations for all tax years.
The specific details are still being ironed out. Look for more information mid-April. Check your mailbox, too: the Division of Taxation plans an outreach mailing to all taxpayers who are known to have amnesty-eligible deficient and/or delinquent accounts.
With revenues plummeting and federal aid in short supply, many states are scrambling to fill holes in their budgets. The easiest way to do it? Raise taxes.
At least ten states are considering major increases in the near future. They are:
- Arizona
- Connecticut
- Delaware
- Illinois
- Massachusetts
- Minnesota
- New Jersey
- Oregon
- Washington
- Wisconsin
Two states have already implemented significant increases: California and New York.
That means that at about a quarter of all states are raising taxes to meet budget shortfalls. If you take those that don’t have income taxes out of the equation, it’s closer to a third. The bad news is that number is expected to climb.
Adding to the income tax woes are shortages in sales tax revenue. Sales tax revenues are at their lowest in years, fueled by a general decline in the sales of taxable goods across the country. Some experts worry that increasing income taxes will only contribute to the drop in sales tax, creating even more problems.
It will be interesting to see what states follow… The number of federal mandates (like No Child Left Behind) has not decreased while funding for those programs has. Add that to increasing jobless claims and foreclosures (and those related costs) and many states will have bigger problems, not fewer. Is your state next?
