For states, time to raise taxes

The conflicts in these states represent the most extreme cases, experts note, and the woes may be partly self-made. Because New Hampshire and Tennessee had fewer sources of revenue in the first place, they were more quickly hit by the economic slowdown.

While most states made tough choices, they generally passed balanced budgets.

Even California, which had to face an unprecedented power crisis, is not in dire shape. Tax revenues there have shrunk, but the nation's most-populous state still is paying into its rainy-day fund.

"It's nowhere near as bad as it has been in the past couple of recessions," says Donald Boyd, a policy analyst at the Nelson A. Rockefeller Institute in Albany, N.Y. "What we've seen so far is that states have dealt with their fiscal difficulties. And ... they did the easy thing first."

Those easy moves involve drawing on rainy-day funds or imposing small, noncontroversial taxes. Measures include:

• Nevada imposed a tax on car rentals, a potentially lucrative revenue source, given the state's large tourist trade.

• West Virginia is taxing video poker for the first time.

• Maine and Wisconsin are raising cigarette taxes.

Antitax advocates don't see these steps as much better than higher income taxes.

"Nickle and diming the taxpayer has become a political art over the years, but the outcome is the same," says Pete Sepp, a spokesman for the National Taxpayers Union, an antitax group in Washington. While proposing small increases in a number of taxes may "diffuse some of the political heat," the real solution, he contends, is for states to cut spending.

In several cases, state governments are coming under fire not for raising taxes but for failing to lower them as promised.

"This has been a tough issue for some states to deal with," says Mr. Carey, the Washington-based budget analyst. "States that have these phased-in tax cuts are grappling with [them]" because there's tremendous political pressure to continue, yet money is hard to come by.

He cites Virginia's elimination of its car tax. Many residents strongly support the move, which was central to GOP Gov. James Gilmore's campaign. But with revenues falling, critics say Mr. Gilmore has used fuzzy accounting to keep the tax cut.

Other states have "surplus kicker laws" - laws mandating that a budget surplus gets kicked back to taxpayers if revenues exceed those of previous years by a certain amount. They have found that this year, for the first time in a while, they will not be sending out any checks to residents.

Indeed, Mr. Sepp says many Americans "may find that the federal rebate they receive this year is the only check coming in the mail from a government."

Staff writer Francine Kiefer in Washington contributed to this report.

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