Coming to 25 states: higher taxes

And more states may follow, as officials try to balance budgets in the midst of an economic slump.

By , Staff writer

More than half of US states are responding to budget challenges with an answer that's often unpopular with their residents: tax hikes.

In some cases, the levies are modest. Still, six states are increasing personal income taxes, 11 are raising sales taxes, and eight are boosting rates paid by businesses.

The wide geographic scope of the tax increases is an indicator of how much pressure an economic slump has put on state finances. And many of the states are ones that avoided significant tax boosts earlier this decade, the last time the United States was in recession. These include Florida, Minnesota, Wisconsin, Colorado, and Idaho.

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In all, 25 states have moved to raise taxes so far this year. Another 12 are considering such moves as they launch into a new budget year this week, according to the Center for Budget and Policy Priorities, a Washington research group that has tracked all the measures.

Given the weak state of the economy, the tally may continue to rise as the year goes on, budget analysts say. That's the case even though states are also cutting spending – at a 4.6 percent pace last year, which was faster than at any time since 1983. States are also getting a big inflow of federal aid from the economic stimulus plan passed earlier this year.

Often, the tax proposals are politically rancorous.

On Wednesday, Arizona's Republican Gov. Jan Brewer was still wrangling over budget matters with a Republican-controlled legislature. Lawmakers don't support her proposal for a rise in the state sales tax, but in a statement Wednesday, she said the Legislature's budget "incorporates devastating cuts to education, public safety, and our state's most vital health services." Governor Brewer sought to resolve some of her concerns by using her power of line-item veto, but further sparring with legislative leaders lies ahead.

The tax wrangling comes at a time of sharpening debate about America's fiscal health. Federal government debt is rising fast. Many conservatives say the budget pressures provide an opportunity for the public to stand firm for spending restraint – or to simplify the tax structure toward a "flat tax" model. Liberals are more likely to support a mix of tax hikes and spending cuts – and to favor steepening tax rates on high-income households.

New York recently moved to raise income taxes on incomes above $200,000, while Hawaii did so on incomes above $300,000.

Overall, states' general-fund spending has risen on average by about 1.9 percent a year since 1979, after adjusting for inflation. That pace, tracked by the National Governors Association, has been faster than population growth (about 1 percent a year) but not as fast as the growth of the economy (about 2.6 percent a year).

Many of the new tax moves are relatively small, such as expanding the services included in a sales tax. Ten states have boosted alcohol or tobacco levies. Nine are raising more money from gas taxes or fees tied to automobile ownership. Fees are also going up for people who use motels in Hawaii, hunt in Maine, or gamble in South Dakota.

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