Washington – The Tax Foundation’s Josh Barro and Joseph Henchman provided sobering analysis of state budget woes across America today at the Conservative Bloggers’ Briefing held at the Heritage Foundation.
In a newly released report detailing the spending practices and tactics of all 50 states, Joseph Henchman, Director of State Projects for the Tax Foundation, proscribed a return to basic principles of good taxation for all ailing budgets, but especially California, which faces a $42 Billion shortfall.
“California’s biggest problem, and a problem for a lot of the states that are in problematic budget sutuations, is heavy reliance on unstable revenue soucres,” he said. Things like capital gains revenue, high-earner taxes and corporate taxes have been the bread and butter of wasteful state legislatures during the past decade’s economic growth. “These are the taxes that rose really high in good times and have dropped so dramatically in bad times.”
Often, states have attempted to bridge budget gaps by freezing salaries and hiring of government employees, using accounting gimmicks to disguise current revenues, or targeting unpopular groups of citizens with tax increases. This last tactic, the politically safe one, preys on those least capable of dealing economically with a tax increase.
“By shifting their tax burden to a small group of people, a small group of highly mobile people who are extra sensitive to economic changes, states have painted themselves into a corner with their budget situations. One by one, we’re seeing proposals on the table for cigarette tax increases in virtually every state…which we found problematic because it represents a shifting of the tax burden to a small, politically unpopular minority, in often cases poorer than people over all.”
Henchman recomends states solve their revenue problems through fair and honest tax policy. “By broadening tax bases and lowering rates, states can generate extra revenue while bringing the state tax system back to the basic principles of good taxation: simplicity, transparency and neutrality.”