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March 4, 2011
Schizophrenia Around the Country

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by David Brunori

Are the states in fiscal trouble or not? Minnesota faces a biannual budget deficit of $6.2 billion. Its new governor, Mark Dayton (D), is proposing to raise the state's top income tax rate to 13.95 percent, which will be the highest in the nation. He also proposes enacting a 1 percent state property tax, subjecting insurance companies to the corporate franchise tax, and adopting an "Amazon" law. He wants to end foreign operating corporations and the foreign royalty subtraction. His proposals total about $3 billion in new tax revenue for next year. The Republicans say the plan would be a disaster for the state economy.

Arizona faces a $1 billion budget shortfall. Its response was to slice taxes by $538 million. In one legislative act, the state lowered the corporate income tax rate from 6.968 percent to 4.9 percent over four years, moved to a single-sales-factor apportionment formula, cut the commercial property tax, increased the business personal property exemption, and granted tax credits of $3,000 per job.

In Connecticut, new Gov. Dan Malloy (D) proposed $3 billion in tax increases, including higher income, sales, alcohol, cigarette, car rental, and hotel taxes, and some strange thing called a cabaret tax. Connecticut faces a $3.7 billion budget shortfall.

In Iowa (which faces a $250 million deficit), the House of Representatives is engaging in some classic trickle-down tax policy. The Republican-dominated chamber overwhelmingly passed an across-the-board 20 percent income tax cut for each of the state's nine tax brackets. The GOP says the tax cut would spur economic development and lead to job creation. Passage in the Democrat-controlled Senate is doubtful at this time, but you can expect a full-court lobbying press. Would the massive tax cut lead to more jobs and greater wealth for all Iowans? There's no evidence that it would. But we do know that it would cost the state $700 million a year. We also know from an analysis by the Iowa Fiscal Partnership that the bottom 20 percent of earners would receive about $18 a year in tax breaks while the top 20 percent would receive more than $6,800. The House move is in addition to Republican Gov. Terry Branstad's proposal to cut the commercial property tax and the corporate income tax.

In Michigan, new Gov. Rick Snyder (R) is proposing to raise personal income taxes by $1.8 billion by expanding the base to include pensions (a good idea) and phasing out or reducing a slew of credits, deductions, and exemptions. Snyder also wants to kill the earned income tax credit and the incentives for filmmaking. Oh, and he wants to scrap the Michigan business tax and replace it with a flat 6 percent corporate income tax. Snyder's budget proposal would shift tax burdens from business to individual taxpayers.

North Carolina Gov. Bev Perdue (D) is proposing something similar. She wants to slash the corporate tax rates from 6.9 percent to 4.9 percent. But she also wants to retain "temporary" sales tax increases that are scheduled to expire soon.

Some states are proposing big tax increases. Some are proposing big tax cuts. Governors in California, Colorado, Hawaii, Massachusetts, and Montana are proposing to adopt new taxes or retain soon-to-expire taxes. Of course, 12 new governors have promised never to raise taxes. I'm not sure there's a rhyme or reason to any of this.

What's Up With Cellular Taxes?

I recently read an article in Slate describing the ridiculously high state taxes on mobile phone services. In Nebraska, New York, and Washington, the state and local combined tax is 19 percent! The national average is 11 percent. The national average sales tax is 7 percent.

So why is the excise tax on mobile phones so high? The article surmises that cellphone rates are a relic of a time -- not so long ago -- when cellphones were a luxury. Of course, today almost everyone has a cellphone, so the tax could hardly be justified as a luxury excise tax. In fact, because most everyone has a cellphone, the tax is probably very regressive. Scott Mackey, who knows a thing or two about state and local taxes, says that many local governments raised their rates during the recession to make up for other lost revenue.

I think most Americans don't realize how much tax they pay because their cellphone bills are complicated and the charges are often bundled with those for television and Internet services. That makes it easy for the government to impose what is essentially an unfair tax on the masses. And it's not right.

But You Have to Live in Kansas

If you have lived outside Kansas for five years and move into the state, you might be able to receive an income tax credit for the first five years you live there. A measure (SB 198) being debated in the Kansas Legislature would essentially bribe people to live in the state. Is Kansas that bad? Sure, it has suffered double-digit population declines over the last decade. But will a tax credit bring folks in? It seems the state should be doing something about keeping the folks who already live there.

When You Need Money: 1

When you need money, you sell the state's airplanes. Florida Gov. Rick Scott (R) did that recently and netted the state $3.7 million for two airplanes.

When You Need Money: 2

In 2007, I mentioned that the city of Chicago was considering leasing its parking meters. In 2008 it leased the 36,000 parking meters for 75 years for $1 billion. Morgan Stanley later then sold the lease to Abu Dhabi. The emirate has complete control over the city's parking meters and has ended free parking on holidays.

Can't Be a Good Idea

Rich folks tend to benefit from federal itemized deductions. You can't deduct your property tax payments from your federal taxable income unless you itemize. U.S. Sen. Kirsten E. Gillibrand, D-N.Y., introduced federal legislation that would allow all homeowners, including those who don't itemize, to deduct their property tax payments. That sounds great and would benefit a lot of folks. But it would cost the U.S. Treasury about $1 billion. I thought Congress was supposed to be cutting expenditures, not adding to them.

Hawaii Is Nice

Hawaii is debating whether to expand the always ludicrous film tax credits. The film industry brought in Cuba Gooding Jr. to testify on the need for more tax breaks. He said that all his actor friends love coming to Hawaii. Indeed.

More From Texas

Last week I was singing Texas's praises for its stand against Comptroller Susan Combs was playing hardball with the Internet giant. In a snit, Amazon announced it would close its distribution center in Texas and leave the state. Of course, it also said it had never really been there. But Gov. Rick Perry (R) apparently didn't like the way Amazon was being treated by the tax collectors. He actually said that he didn't think Amazon should be required to collect taxes because it doesn't have a storefront in the state. I guess Perry thinks physical presence means a storefront. I must have missed that interpretation when I read Quill.

Definitely Not a Good Idea

A proposal in Montana would give refundable tax credits to parents of children attending private schools. Giving tax credits for attending private schools forces citizens to subsidize religious institutions. More important, it undermines support for the public education system.

On a Billboard

On the Indiana side of the Illinois state line:

    Illinoyed by Higher Taxes?
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The Politics of State Taxation is by State Tax Notes contributing editor David Brunori, who welcomes comments at

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