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Will your state taxes go up? How legislatures are leaning.

As red states get redder and blue states bluer, state taxes could head in opposite directions. Some states are trying to eliminate income taxes, others are raising them.

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Those moves contrast strikingly with proposals and new laws in blue states:

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  • Massachusetts Gov. Deval Patrick (D) wants to increase income taxes and cut sales taxes in order to spend $34.8 billion more on education and transportation.
  • Minnesota Gov. Mark Dayton (D) proposed to decrease local property taxes and the sales tax rate while increasing the income tax rate for high-income earners as well as closing tax loopholes. His plan would add $2.1 billion to revenues and cover the projected $1.1 billion deficit in the state's fiscal year 2014-15 biennial budget.
  • During a special legislative session in May 2012, Maryland Gov. Martin O’Malley (D) signed a law that raised income taxes on individuals making more than $100,000 and a new top rate of 5.75 percent on income over $250,000.
  • In California, voters approved Democratic Gov. Jerry Brown’s Proposition 30, which included a temporary income tax hike to get the state’s budget out of the red.

The economics of taxes is fiercely debated.

The American Legislative Exchange Council, a conservative public policy think tank founded by former Ronald Reagan economic adviser Arthur Laffer, advocates that states eliminate income taxes and put rigid limits on spending as a strategy to promote economic growth.

If Louisiana or Nebraska eliminated its income tax, the move would be historic, says Nicholas Johnson, a state fiscal policy analyst at the Center on Budget and Policy Priorities in Washington.

“No state has repealed their income tax since oil-rich Alaska did in 1980,” he says.

But eliminating income taxes is not a proven method for stimulating growth, say analysts. They say it places an unfair burden on middle and low-income earners, who spend a greater portion of their income on goods and services compared with high-income earners.

With surpluses occurring in many states, Democratic lawmakers see it as an opportunity to invest in infrastructure and programs that were put on hold during the recession, says Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments.


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