State lawmakers' sticky task: enacting new taxes to fill void left by shrinking federal aid
Boston — These are "taxing" times -- both literally and figuratively -- for many state lawmakers. In a year when their federal counterparts have approved the biggest tax cut in the nation's history, legislators from New Hampshire to Hawaii have been grappling, and not always successfully, with state revenue needs.
While most states thus far have held the line, at least 26 states have increased one or more levies within the past seven months.
Meanwhile, nine states, including five in the first group, have reduced one or more taxes.
Lawmaker action on the taxation front, however, may be far from finished.
Several legislatures which completed their annual or biennial sittings weeks and months ago and others now in recess will almost certainly have to come to grips this fall with tax- boost proposals spurred by recently approved federal cutbacks in various state-aided programs.
Such prospects are a major concern to more than a few governors who may have little choice but to come up with some kind of legislation to replace funds that will not be coming from the nation's capital during its fiscal year, beginning Oct. 1.
This situation and the continuing overall budget-balancing challenges facing heads of state from coast to coast, seem sure to be discussed considerably at the meeting of the National Governors' Association, which began in Atlantic City , N.J., Aug. 9.
A Monitor survey of top gubernatorial aides in a cross section of states indicates that most of the chief executives, although apprehensive what the full impact of the federal budget cuts will be, are guardedly optimistic any revenue shortfall can be absorbed without a substantial tax hike.
This despite the fact that with few exceptions fiscal 1982 state budgets approved earlier this year make no provision for what in some instances may be a substantial funding need.
Of levy increases enacted since last January the most prevalent are on motor fuels, 18 states having raised their gasoline taxes either on a per-gallon basis or through a percentage of the wholesale or retail price.
They are Arizona, Colorado, Delaware, Idaho, Indiana, Minnesota, Nevada, New Hampshire, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, and Wisconsin.
Sales taxes have been hiked either directly or through elimination of certain exemptions, in four states -- Minnesota, Nevada, New York, and West Virginia -- plus the city of Chicago. The latter increase, from 6 percent to 7 percent, effective Aug. 1, is part of Mayor Jane Byrne's program to help fund the area's mass transit system.
In New York, a similar transportation bailout measure raised the sales tax by 0.25 of a percent in Manhattan and the surrounding metropolitan region. This brings to 7.25 percent the bite in most suburbs and 8.25 percent in New York City.
The Minnesota increase, a temporary one extending only through June 1983, advanced the rate from 4 percent to 5 percent, effective July 1.
The Nevada boost was from 3.5 percent to 5 percent as of May 1. One month later the West Virginia hike, from 3 to 5 percent, took effect.
Other 1981 action on the sales tax front involved extension for at least another year two boosts in the Tennessee levy which over the past decade have hiked the rate first from 3 to 3.5 percent and then to 4.5 percent.
Illinois lawmakers voted to postpone for another year the next step in the phase-out of its now 3 percent sales tax on food and prescription drugs. The state sales tax applicable to other items remains at 4 percent.
Michigan voters, in a special May 19 referendum rejected a proposed boost in the state's sales tax from 4 percent to 4.5 percent. The increased revenue generated was to have been used toward funding a $1.12 billion property tax relief measure pushed by Gov. William Milliken.
An alternative proposal to provide increased state aid to communities is now being shaped quietly and is expected to be filed this fall for state lawmaker consideration.
Cigarette taxes were boosted in five states -- Iowa, from 13 to 18 cents a pack, Nebraska from 13 to 14 cents, South Dakota from 14 to 15 cents, Washington from 16 to 20 cents, and Wisconsin from 16 to 20 cents. Chicago also raised its per-pack levy from 5 cents to 10 cents, over and above the 12 cent Illinois cigarette levy. This increase, effective Aug. 1, is expected to net the city $ 18 million a year. The parallel sales tax hike is to bring in between $95 million and $100 million.
Also newly approved in the Windy City is a controversial new 1 percent municipal levy on services, supposed to yield another $100 for financing transit funding needs.
At least five states have increased outright or narrow exemptions on business taxes. Connecticut imposed a new levy of 5 percent on the net income of unincorporated firms.
Montana raised its oil production severance tax from the former levels, 2.1 percent and 2.65 percent, to 5 percent and 6 percent. Nebraska raised its oil and gas severence tax from 2 percent to 3 percent.
New Hampshire boosted its minimum business profits tax from $250 to 13.5 percent.
Granite State lawmakers also increased the tax on hotel and motel rooms from 6 percent to 7 percent.
New York imposed a new statewide 0.75 of a percent levy on oil company gross receipts and provided a 10 percent capital gains tax on real estate transactions within New York City.These together with the increase in the sales tax and adjustments in some other business levies are expected to raise $350 million to help fund mass transportation.
Increases in liquor taxes have been approved in at least three states, New Hampshire, South Dakota, and Wisconsin.
Perhaps the least action so far has been on the personal income tax front.No state has raised its rate. The most significant move in that direction coming in Pennsylvania where a temporary 0.2 of a percent boost imposed six years ago was extended, leaving the levy at 2.2 percent.
In Utah single people filing returns have had their taxes brought to the level of people filing jointly.
Utah also increased from $5 to $10 the per- acre real estate tax on mining claims ands rolled back to 1978 levels property values for taxation purposes.
Tax reductions of various types, ranging from modest to fairly substantial, were provided in Colorado, Hawaii, Illinois, Montana, New Mexico, New York, North Dakota, South Dakota, and Wisconsin.
Montana eliminated its property tax on motor vehicles.
Hawaii increased income tax exemptions for 1981 only.
New Mexico and South Dakota chopped their sales taxes. In the latter from 6 percent to 5 percent, with an estimated taxpayer saving of $16.9 million, and in the former from 3.75 percent to 3.5 percent, and an estimated $33.4 million lost of revenue.
New Mexico adopted a two-stage 25 percent overall reduction in its graduated personal income tax. The levy range which personal income tax. The levy range which had been from 0.8 of a percent to 9 percent, dropped to a spread of from 0 .6 of a percent to 6.7 percent this year, with a further dip in range from 0.6 of a percent to 6 percent maximum next year. This is expected to cost the state
Also lowered by the state, at a potential loss of $4 million loss, is the corporate income tax, from 5 percent to 4 percent up to the first $1 million in receipts, although the state increased from 5 to 6 percent the levy for earnings in excess of $2 million.
North Dakota cleared the way for an optional shift from the state's 1 percent to 7.5 percent graduated income tax to a percentage of the taxpayer's federal personal income tax liability. And the state's maximum corporate tax rate was lowered from 8.5 percent to to 7 percent.
Colorado also reduced its corporate income tax.
In Wisconsin the capital gains exemption was increased to the federal level and increased the federal the business depreciation allowance.
New York increased the standard deduction from $50 to $100 on personal exemptions and provided a new tax credit on pension income up to $20,000. Also raised was the capital gains exclusion allowance to the 60 percent federal level. Capital gains allowances on business income were similarly adjusted.
The Empire State's tax reductions are projected to save citizens and businesses $75 million the first year and a total of $350 million over the next five years.