Tax and Budget Reform: Policy Options for 2011 to Address the Revenue Crisis in the States

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Although the recession may have technically subsided at the national level, states are still reeling from historic budget shortfalls, stubbornly high unemployment, and significant revenue declines and will continue to face fiscal challenges in the upcoming year. The lingering effects of the downturn have forced state lawmakers to consider extreme fiscal measures to confront budgetary constraints. What’s more, states have already utilized a substantial portion of the federal funds available for state fiscal relief through the American Recovery and Reinvestment Act (ARRA).

These dire circumstances merit progressive tax and budget policy as a means to provide essential services, make critical investments in long-term growth areas, support working and middle-class families who have been disproportionately hit by the impact of the downturn, and ensure that all taxpayers are contributing their fair share.

Polling indicates strong public support to achieve these ends and at the same time, general skepticism that government serves wealthy and corporate interests over the needs of working families. In fact, a 2009 poll found that 79 percent of the public believes “[g]overnment investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth.”

Unfortunately, in recent decades, the policy debate has been unduly influenced by vehement right-wing rhetoric that, in several cases, has resulted in unsustainable budget cuts, misguided privatization schemes, and federal and state taxation structures that are overwhelmingly regressive, placing a heavier burden on low and middle-class families.

Nevertheless, progressive lawmakers and advocacy groups have persistently advanced responsible revenue increases to support state programs and working families.

Accordingly, this climate provides progressives a strong opportunity to reclaim the fiscal and economic conversation. This specifically points to implementing policies to create a fairer and more accountable budget process as well as encourage robust economic growth and job creation. Research and historical precedent demonstrate that raising revenue in a progressive manner is sound, politically feasible, and popular with the public, especially compared to massive cuts in investments in education, infrastructure, and health care that endanger a state's economic and social vitality.

In the past two years, states have enacted a wide-ranging set of reforms to cope with cumulative 2010 and 2011 deficits of approximately $375 billion, including targeted revenue increases, augmenting transparency of state spending, easing the tax burden of working families, making sure corporations are being held accountable, and limiting privatization. The following report will assess and analyze various tax and budget issues including, appropriate messaging highlighting the importance of responsible tax policy during an economic downturn, progressive revenue generating mechanisms, fighting right-wing tax campaigns, reforming ineffective subsidies and excessive contracts, restricting privatization, and encouraging transparency and accountability in the budget process.