Weak economy brings call for new taxes from governors

Most who are for the hikes aren't running for re-election

Posted: Sunday, January 20, 2002

With the economy weak and state budgets hemorrhaging cash, a handful of governors are stepping up to offer a proposal that hasn't been seriously considered in years: higher taxes.

Five governors so far are calling for new or higher taxes, while a sixth wants to delay an income tax cut. Taken together, it's a sharp turnaround after seven years of steady tax cuts.

But in a not-so-curious sign of an election-year, only one of these would-be taxers could face voters in the fall. At least 10 other governors promise they can survive the roughest fiscal year in decades without new taxes - and nearly all are up for re-election.

"We're either going to invest in the future, or we're going to deny vital services, critical programs and economic opportunity to Kansans," GOP Gov. Bill Graves told legislators in his final state-of-the-state address this week. "It's that simple."

Graves drew gasps at the capital in Topeka when he proposed adding 65 cents to a pack of cigarettes, a penny to each gallon of gas, and a quarter-penny to nearly every dollar spent on general sales. The state faces a $426 million shortfall next year.

"The people of this state are not in the mood to raise taxes," said GOP state Rep. Doug Mays. Later, Graves' fellow Republicans started a "Tax Me More" fund for those who want to give government more of their pay.

Nationwide, however, state finances are the worst they've been in two decades following seven years that saw states cut $36 billion in taxes overall.

Some 44 states have seen expenses go over expectations this year, and 36 had to cut to make it through. And the problems appear to be worsening for the 2003 fiscal year that, in most states, begins in July.

All states except for Vermont must balance their budget, so they can't run a deficit like the federal government.

In the past two weeks, as the legislative year began, lawmakers heard Alaska Gov. Tony Knowles, a Democrat with a $1.2 billion shortfall looming, call for an income tax; Reform Party Gov. Jesse Ventura of Minnesota propose new tobacco, gas and sales taxes; Washington state Gov. Gary Locke, a Democrat, ask for higher taxes on gas and liquor; Indiana Gov. Frank O'Bannon suggest higher cigarette and riverboat casino taxes; Democratic Maryland Gov. Parris Glendening seek to delay the state's cut to the state income tax by a year-and-a-half and save $175 million.

"It's very difficult" to propose a tax increase, said O'Bannon, a Democrat whose final term lasts two more years. "It takes a lot of courage and leadership to step forward and get this through the legislature."

He and state lawmakers cut $1 billion in taxes over the past four years. When the economy sank, they cut $700 million last year, freezing hiring and wages. But without taxes, he said, the state won't overcome a shortfall as high as $1 billion.

Anti-tax advocates are concerned.

The recession makes taxes "a likelier choice of resort among politicians," said a skeptical Pete Sepp, director of the National Taxpayers Union. "The problem is, raising taxes during a recession will surely drive the spiral further down."

On the other side of the tax divide are governors, both Republican and Democrat, who face re-election this November: Florida Gov. Jeb Bush, a Republican; California Gov. Gray Davis, a Democrat; Massachusetts Gov. Jane Swift, a Republican; South Carolina Gov. Jim Hodges, a Democrat.

Similar "no tax" promises were made in Wisconsin, Nebraska, Colorado, North Dakota, Idaho and New Mexico. All but governors in New Mexico and North Dakota will face re-election this year.

"I will not advocate a tax increase to bridge the budget gap," Davis told lawmakers. "I believe we have enough financial tools to bridge the shortfall without increasing taxes or severely damaging vital programs."

Legislative analysts, however, said the California governor overestimated revenues and federal support and deferred spending in a way that could leave a $4 billion shortfall in two years. Davis's staff disputed that.

In New York, GOP Gov. George Pataki started the year promising to go ahead with $300 million in tax cuts. Then he raised eyebrows days later by agreeing to the highest cigarette taxes in the nation.

Some analysts say that reserves can help the states get through the recession, but only if the downturn doesn't last too long.

The first inklings of tax talk came at the end of last year, when two other cash-strapped states Alabama and North Carolina passed increases to patch their troubled budgets.



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