Governors Propose Major Tax Hikes

The first few weeks of 2003 have brought a spate of proposed tax increases from governors across the political spectrum and around the country.

To date, the governors of Arkansas, California, Connecticut, Georgia, Kentucky, Missouri, Nevada and Ohio, a group that includes Republicans and Democrats, new governors and old, conservatives and liberals, have proposed tax increases to balance state books. The governors of Illinois and New Jersey are actively considering tax increases as well.

The size and diversity of this group is a key sign of the dire fiscal straits many states are in, said Thad Beyle, political science professor at the University of North Carolina, Chapel Hill.

“It tells me that we’re getting down to the point where [governors] realize that if they don’t do something. . .then some of the basic functions of government are going to be badly hurt,” Beyle said.

More tax proposals may be on the way. Governors and state legislators are just now returning to state capitols to craft new budgets for the year ahead and grapple with current year budgets that have fallen out of balance.

In many states, returning lawmakers face a precarious situation programs have been cut, reserve funds have been drained, and budgets deficits linger still. Collectively, states face deficits approaching $90 billion this year and the next, according to the American Legislative Exchange Council, a right-leaning state policy organization.

Forty-nine of the fifty states have balanced-budget requirements (the exception is Vermont), meaning they must end their fiscal years in the black. One way to achieve this is through broad tax increases. But governors asking citizens to surrender a little more money to the state often do so at their political peril.

Connecticut Gov. John Rowland (R) had to break a “no new taxes” pledge to embrace a Democratic plan to raise the income tax of the state’s millionaires to help close a $650 million gap.

California Gov. Gray Davis (D) became a whipping boy for fiscal conservatives after proposing an $8.3 billion tax increase to partially balance the state’s books.

And Georgia Gov. Sonny Perdue (R) encountered immediate, stiff resistance from legislators to his proposal to increase cigarette and alcohol taxes and curb property tax rebates by an average of $155 per homeowner. Perdue reversed course in his State of the State Address Monday (1/27), opting to leave the property tax rebates untouched.

UNC’s Beyle says governors pushing for tax increases often find many of the state’s political forces pushing back just as hard.

“The legislature and the people who are against [the tax] will start yelling and screaming,” said UNC’s Beyle. “But you balance that against the fact that it’s getting down to where they’ll have to cut back on key functions, like education, higher education, health and welfare.”

Idaho, Gov. Dirk Kempthorne (R) called for increases in cigarette and sales taxes to help close a $200 million budget gap.

He said the alternative spending cuts alone would require the state to eliminate funding to its seven health districts, close the health department’s extension offices in all 44 counties, end state support of community colleges and state funded scholarships and financial aid, and wipe-out state economic development efforts as well as state funding to the Departments of Agriculture and Labor.

“This would be devastating to Idaho and none of us were elected to eliminate the core services we provide to our citizens,” Kempthorne told state lawmakers in his 2003 State of the State Address. Kempthorne, a noted fiscal conservative, cut taxes 48 times in his first term.

In rare instances, some benefits can accrue to politicians who push for tax increases, especially when weighed against the alternatives.

Such is the case in Arkansas, where Gov. Mike Huckabee (R) is riding a wave of glowing press reports following his 2003 State of the State Address, in which he called for new revenues and a major reorganization of the state’s education system.

“To sum up the general reaction in the Capitol corridors: Wow!” said an editorial in The Arkansas Democrat-Gazette (Little Rock).

Whether this translates into actual legislative or political success remains to be seen. But for now, at least, Huckabee seems perfectly pleased to be lauded as a bold leader, sending out emails touting his latest positive reviews.

“I thought you might want to read [this editorial],” said one email. “We thought you might be interested in seeing this editorial from the current issue of Arkansas Business,” said another. And finally: “I thought you would be interested in seeing these editorials.”

Bleak budget forecasts are also forcing some governors to roll back planned or proposed tax breaks.

Hawaii Gov. Linda Lingle (R) said she plans to postpone her plan to repeal the sales tax on food and medicine, a key campaign promise.

North Carolina Gov. Mike Easley (D) said he wants to postpone $460 million in tax breaks scheduled to go into effect next fiscal year.

Not all governors, however, plan to tweak taxes to close deficits.

Colorado Gov. Bill Owens (R) vowed in his State of the State speech this month that, “So long as I am governor, we will not raise taxes.”

Florida Gov. Jeb Bush (R), struggling to pay for a voter-mandated limit on class size, also said tax increases are off the table.

The same goes for New York Gov. George Pataki (R), who leads a state facing a $12 billion budget deficit, one of the nation’s largest.

“California is looking to solve its problems in part with more than an $8 billion tax hike,” Pataki said, according to The Rochester Democrat and Chronicle. “We will not be making that mistake.”