The sky is falling! The sky is falling!
Okay, not really. But revenues are falling. And it feels just as dramatic.
As the economy slowly begins to recover, another challenge looms on the horizon: how to pay for of this “stimulus.” Cash for Clunkers? Stimulus checks for the disabled? TARP relief for banks? Extended unemployment benefits? Just where is the money coming from? If you said “taxes”, you’re only sort of right.
The money for all of these programs – as well as spending on Iraq, Afghanistan and other big budget items – is supposed to be drawn from tax revenues. There’s just one teensy problem: we don’t have much in the way of tax revenues.
If the current pace continues, tax receipts for 2009 will be almost 20% less than last year. That’s before the tax cuts expire. It is the steepest decline since 1932, during the Great Depression.
According to the AP, individual taxes, Social Security and Medicare revenues are all down from the same time last year. Even more striking? Corporate revenues are down more than 50%.
What’s particularly scary about these numbers is that, even before the $1 trillion health care bill gets passed, spending continues to rise. Despite attempts to scale back in Iraq, military spending is still up from last year. Together with other spending, increases are set to hit more than 10%. That’s right: increases in spending, decreases in revenues.
You do the math.
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.
We have a winner! See comments!
Our next tax trivia question is:
Beginning in the early 19th century, the US did not impose any direct taxes on income for nearly 50 years. Other than occasional excise taxes, what was biggest revenue raiser for the US during that time?
Don’t forget: the first correct answer wins free CCH tax prep software.
What’s your guess?
