Friday, April 1, 2011
State tax revenues up, but budget and tax system problems remain
The US Census Bureau reported on March 29 that state tax collections were up in the fourth quarter, other than property taxes. A March 30 Wall Street Journal article - "State Tax Revenues Snap Back" by Dougherty, notes that states still face problems due to ending of federal stimulus dollars and growing pension and health care costs. And some of the tax law changes made to balance state budgets have not been pretty - suspension of NOLs, changes in estimated tax due dates, increase taxes on low and middle income taxpayers (California did each of these), nexus grabs, and rate increases. Modernizing tax systems and ensuring that they meet principles of good tax policy have not been focal points although various state tax commissions have noted these needs. How did the increase occur given drop in consumer spending and drops in income? Will this lead states to start considering improvements to their tax systems rather than continued desperate changes to balance budgets? What do you think?