Taxes Take a Fall As States Get Lift From Economy

Not since 1978 and '79 have cuts for citizens come back-to-back

GEORGIA is phasing out its tax on food, thanks in part to state income expected from the coming Atlanta Olympics. Indiana is saying goodbye to a pesky auto-excise tax, courtesy of a growing state lottery. Arizona has cut its property tax as a result of a population boom.

In 1995, for the first time in a decade, America's 50 states cut taxes, on average, more than they raised them. The trend is expected to repeat itself this year, in the first back-to-back overall state tax cut since 1978 and 1979.

"We've seen strong economic growth in most regions of the country, which means both more tax revenue and savings in major welfare programs," says Scott Mackey, principal researcher for the National Conference of State Legislatures in Denver. Many states have also been purposely building up reserves for years, he says, "and are taking advantage of this moment to make good on their plans to cut back."

Also a factor: Republicans are in control of more statehouses than at any time since the '50s. Sent to their chambers by an anti-tax wave that has grown through the '90s, those politicians are now making good on campaign pledges.

"Basically this is a result of good economic times and the conservative mood to cut back government," adds David Liebschutz, senior analyst for the Center for the Study of the States in Albany, N.Y.

Georgia's current 4 percent sales tax will be cut in half on Oct. 1 and completely repealed in October 1998, saving Georgians about $500 million. "That's a lot of money for Georgians," says state legislative fiscal analyst Monnie Sellars. "The people wanted it, the governor proposed it, and, boom, we did it."

Anti-tax sentiment is so strong in Washington State that the Republican House and Democratic Senate overrode the governor's veto of a $132 million cut in the business and occupation tax. The legislation was almost identical to a similar package adopted and vetoed in 1995.

Indiana's state legislative analyst Jeff Spalding says Indianans had long chafed at the average $300 excise tax tacked onto buying new cars. Because strong fiscal times last year put Indiana $1.3 billion in the black, the $1 billion in tax cuts is not expected to be missed soon.

Because state lottery income is expected grow with new moves to include off-track horse betting and riverboat gambling, future excise revenue loss is designated to be made up by gambling revenue.

Low unemployment has led states to cut business taxes that provide for unemployment insurance. Kansas and North Carolina suspended such taxes indefinitely; Illinois adopted a $147 million reduction, a new NCSL survey shows.

ONE factor that may be slowing even more tax cuts is the current budget impasse in Washington. Fiscal planners across the country do not know what kind of program cuts will affect them. As a result, they are estimating conservatively. "If the feds suddenly decide to ask states to pick up the cost of Medicaid, we could get hammered.... That makes it hard to plan right now," says Greg Browning, Ohio state budget director.

Besides that wild card, there is concern that recessionary times could return. "States have to be careful not to cut too much," says Mr. Liebschutz. New York State made a large tax cut last year but ended up with a $2 billion hole in this year's $60 billion budget. "If revenues suddenly go flat, you are looking at cutting more programs or raising taxes again," he says.

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