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Tax Law

State Net Capitol Journal – July 16, 2012

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Budget & Taxes

POLITICAL DIVIDE ON ECONOMIC RECOVERY: States finally emerging from the long economic downturn are now faced with the dilemma of deciding the best way to facilitate their recovery. Two states in particular are taking approaches that couldn't be more different.

Maryland, a state controlled by Democrats, has opted to raise income taxes on its top earners to bolster services that have taken a hit during the recession, particularly its highly-regarded education program.

"Progress is a choice," Gov. Martin O'Malley (D) said in an impassioned speech to mayors from across the state at the annual convention of the Maryland Municipal League last month. "We can decide whether to make the tough choices necessary to invest in our shared future and move forward together. Or we can be the first generation of Marylanders to give our children a lesser quality of life with fewer opportunities."

GOP-led Kansas has chosen instead to try to boost its economy by cutting taxes. Gov. Sam Brownback (R) said what convinced him the state needed to significantly cut its income tax and small business taxes was data from the Internal Revenue Service showing the state was losing residents to other states with lower tax rates.

"My viewpoint, and the viewpoint of the majority of the Legislature, was we've got to change our tax policy to attract more people and attract more businesses," the governor said in an interview. "We're just tired of losing in our league - I consider the surrounding states as our league - and we want to start gaining."

The two states exemplify the growing political divide on the issue, with Democrats pushing to restore recession-ravaged services and Republicans pressing for economy-boosting tax cuts. Ohio, for instance, made major cuts to education and aid to local governments during the downturn, which Gov. John R. Kasich (R) announced last week has enabled the state to end the year with a $235 million surplus. But in California, Gov. Jerry Brown (D) is seeking tax hikes he says are needed to replace revenue from temporary tax increases imposed during the recession but allowed to phase out too soon, potentially necessitating another $6 billion in cuts.

Kansas and Maryland may provide a real-time test of those competing positions. But it may be a while before the results are known. (NEW YORK TIMES)

GULF COAST STEP CLOSER TO OIL SPILL RECOVERY MONEY: Last month, as part of a larger transportation bill, Congress approved the Restore Act, designating how the billions of dollars BP will pay in fines for its role in the 2010 Gulf Coast oil spill will be disbursed. In keeping with the act's name, 80 percent of the money will go directly to the five states most impacted by the spill - Alabama, Florida, Louisiana, Mississippi and Texas - an unprecedented arrangement, as such financial penalties usually go into a trust fund and the U.S. Treasury Department's general fund to be distributed nationally.

Much of the money will go toward projects the Gulf states have been planning over the last two years since the disaster. Louisiana, for instance, recently passed a 50-year coastal plan calling for 109 projects, including coastal restoration.

"Our priorities will be the implementation of that plan," said Garrett Graves, director of the state's Coastal Protection and Restoration Authority. "Making an investment in ecosystem restoration, making other investments to improve the resiliencies of some of our coastal communities - that's where we plan on prioritizing the [early] investments.

The states won't start receiving the money until early next year, after a civil trial to determine the size of the fines against BP - estimated to be between $5 billion and $20 billion - unless a settlement is reached before that.

Gulf Coast environmental advocates say they're work is far from over, but they're still relieved.

"We have a long, long way to go still," said Casi Callaway, executive director of Mobile Baykeeper, based in Mobile, Alabama, "but the biggest and hardest hurdle has passed - getting it through Congress." (USA TODAY)

BUDGETS IN BRIEF: The City Council of San Bernardino, CALIFORNIA voted last week to file for Chapter 9 bankruptcy, after learning the city had just $150,000 in its bank accounts, barely enough to cover the June 15 payroll. The news comes less than two weeks after Stockton, CALIFORNIA became the largest city ever to file for bankruptcy (LOS ANGELES TIMES). • MASSACHUSETTS transportation officials revealed last week that the total cost of the highway megaproject known as the Big Dig will exceed $24 billion by the time the final bond is paid off in 2038. That figure is $9 billion more than officials disclosed when construction on the project was completed nearly a decade ago (BOSTON GLOBE). • The U.S. Department of Agriculture has declared 1,016 counties in 26 states natural disaster areas as a result of the worst drought in decades. The federal action will make farmers and ranchers in the affected areas eligible for low-interest loans, but the amount of the aid - estimated to total about $4 million - pales in comparison to possible losses; one of the affected states, KANSAS, produced $8.2 billion worth of crops alone in 2010 (BLOOMBERG). • The U.S. House Agriculture Committee was expected to begin debating a farm bill last week that includes a $16 billion cut to the food stamp program over 10 years. As SNCJ reported last week, many congressional Republicans believe the food stamp program should operate the same as welfare, which was converted from an entitlement program to a block grant program in 1996 (STATELINE.ORG, STATE NET).

- Compiled by KOREY CLARK

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