Promote Fair Income and Estate Taxes

This past Tuesday, Maine votersconsidered legislation which would have reformed the state's tax structure and bond measures that will bolster infrastructure investment.By a large margin, Mainers rejected a law passed last June, LD1495, to lower the top income tax rate from 8.5 percent to 6.5 percent for state residents earning less than $250,000 annually by broadening the sales tax to include different services and shifting tax burden to nonresidents by increasing the meals and lodging tax from 7 to 8.5 percent.

As this Dispatch will detail, these votes mirror actions taking place in both conservative and progressive states and localities around the country.  In 2009 and 2010, states have enacted a wide-ranging set of revenue increases to cope with cumulative 2010 and 2011 deficits of approximately $375 billion.  Although revenue forecasts are improving, states are still reeling from historic declines in the past year.

What is remarkable is that the anti-tax movement has racked up such regular failures in the crisis, as even many state leaders previously signing "no taxes" pledges have reneged on them.   Instead, popular demand for new revenue to avert budget cuts has driven legislative movement on progressive tax and budget policy.

Adding to the general public support has been research consistently showing that progressive revenue increases during a downturn is a better alternative to cuts in order to promote growth and protect vulnerable populations suffering during the recession.

Finally, this Dispatch will outline some of the effective messaging and research to demonstrate to voters that progressive measures and tax increases are economically sound and go to the programs they want preserved -- the critical step in the success of revenue campaigns.

The Council of Economic Advisers (CEA) recently released its third quarterly report on the impact of the American Recovery and Reinvestment Act (ARRA).  The report generally confirms what economists across the board have concluded: the Recovery Act has prevented a full economic collapse; generated millions of jobs; boosted national economic performance; and provided sorely needed state fiscal relief.

As states struggle to close budget gaps, it's worth highlighting that due to tax changes at the federal level, most middle income families are paying a far smaller percentage of their income in federal taxes than they did a few years ago.  So while states should concentrate revenue increases on those who can most afford it, there is greater capacity among middle income families to absorb some tax increases due to the lower federal tax burden.

How are Arizona's right-wing legislators responding to the state's most severe fiscal crisis since the Great Depression?

Massive corporate income tax cuts, of course.

Last Tuesday, Oregonians overwhelmingly approved two ballot initiatives that ratified legislative action last year to increase high-end personal income and corporate taxes.  The failure of the anti-tax movement in Oregon is one more in a long stream of right-wing initiatives rejected by voters at the ballot box.  In fact, progressive revenue generation as part of a balanced approach to addressing state deficits has been popular with both voters and legislatures for years.  This Dispatch will provide both the facts and messages to debunk opposition to smart revenue options, while outlining a few of the best revenue approaches to filling budget holes.

Earlier this year, policymakers in Oregon enacted both temporary and permanent changes in the state’s tax system to help close an enormous budget gap and, by extension, provide funding for vital services like education, health care, and public safety... Yet, due to quirks in Oregon’s legislative process, opponents of these changes have an opportunity to put them before the voters for approval via referendum.  Not surprisingly, representatives of big business and a who’s who of anti-tax organizations are attempting to take full advantage of that opportunity.

Oregon became the latest state to address the current fiscal crisis with progressive revenue increases.  This is part of a welcome trend that we highlighted back in April of states recognizing that budget cuts need to be balanced with wealthier state residents being asked to pay their fair share to address the effects of the economic downturn.

After resisting the proposal for months, New York Governor Patterson has agreed with legislative leaders to raise income taxes on the wealthiest state residents in order to help close the state budget gap.  “It’s a profound breakthrough for tax fairness,” said Dan Cantor, executive director of the Working Families Party, an organization of New York individuals, labor unions and other groups that was a leader in the campaign to raise the tax rates.  The New York deal is part of a national movement of state leaders looking to raise new revenue from high-income residents to avoid budget cuts and fund needed investments for long-term economic recovery.

The budget news is grim in some states.  Twenty states face a combined budget shortfall of at least $35 billion for 2009, according to analysis by the Center on Budget Policy & Priorities (see CBPP graph below). Another 8 states will likely have budget problems next year or the year after.