States are facing unprecedented budget deficits, as sales, real estate, and income tax revenue evaporate. From California to New Jersey are raising taxes, cutting benefits, and scrambling to borrow the money they need to pay the bills.
As CNN reports on tax hikes:
Already, 16 states have taken this unpopular step this fiscal year, and another 17 have proposed tax hikes for the coming year, according to the Center on Budget and Policy Priorities, a policy group. In many cases, they are making small increases in specific taxes, rather than imposing a broad rate hike.
At a time when jobs are scarce, retirement funds are decimated, and the economy is on the edge, high taxes may have many state residents worried. Here’s what you should keep in mind:
- They aren’t here to stay: In most cases, these temporary tax hikes really are temporary. States are making up their current revenue shortfal, but few of them intend to permanently raise income taxes or state taxes. More specific measures, like higher alcohol and cigarette taxes, are more likely to stick around, though.
- Not every state is in trouble: Although many states are in the headlines, there are only a few real danger spots: California, Arizona, Florida, and Nevada are in trouble because of the real estate crash (the vast majority of foreclosures are happening in these states). New York, New Jersey, Illinois, and Massachussets are suffering because of high spending on social services, combined with reduced income from the financial industry. Meanwhile, states like North Dakota and Alaska have seen fewer defaults and less economic trouble (so far, at least).
- They’re designed to keep you afloat, not sink you: States are raising taxes so they can keep spending money on services people need most in a tough economy. So they’ve tried to design current taxes to minimize job loss and keep people from leaving the state altogether. So if you find your new taxes overwhelming, you’re probably going to get a sympathetic hearing. State tax authorities are often able to help you extend your payment, negotiate for more time, or even help reduce the amount you owe.
The current state tax situation is certainly worrisome, but it’s not as bad as it looks. With the economy likely to recover, and state spending set to drop, the current shortfalls are not likely to last. And if the situation deteriorates, the Federal government may step in with a bailout rather than force states to raise taxes and cut services even more.