States Using Common-Sense Tax Increases to Deal with Budget Deficits

As we detailed a few weeks ago, many states recognized this year that trying to solve budget crises with spending cuts would not only hurt many vulnerable state residents, but also would not be the most effective policy for economic recovery and long-term growth.

As sessions have moved forward, sixteen states have enacted tax increases and another seventeen states are considering revenue-raising options to close budget gaps, according to this analysis (and graph below) from the Center on Budget and Policy Priorities. 

New revenues enacted range from higher tax rates for high-income earners in New York and Hawaii, expansions of the sales tax in California, broadening the sales tax base and enacting corporate tax reforms in Wisconsin, and a array of new revenue sources in other states.

States have traditionally raised taxes in past recessions.  Yet, those states that did raise taxes suffered no drop in annual growth rates compared to states that depended on budget cuts alone during recessions. The reality is that long-term growth is dependent on making common-sense public investments, even and especially during economic downturns.  This is one reason that the states which collect the highest percentage of personal income in taxes actually sustain higher income growth.

Center on Budget and Policy Priorities - Tax Measures Help Balance State Budgets: A Common and Reasonable Response to Shortfalls
Progressive States Network - Taxing High-Income Residents: Better than Budget Cuts, Better for Economic Growth
California Budget Project - Budget Cuts or Tax Increases: Which are Preferable During an Economic Downturn?
Institute on Taxation and Economic Policy - High Income Tax States Have Strong Economies