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Tax Law

State Net Capitol Journal - May 21, 2012


 Budget & taxes

CONGRESSIONAL REPUBLICANS CALL OUT STRUGGLING US STATES: As economic turmoil returned this month to Greece and Spain, key Republicans in Congress issued a tough message for struggling U.S. states. 
"Recent experience on Wall Street and in Athens suggests that if decision makers in Illinois, New York, California or anywhere else believe Washington will bail them out of their fiscal mismanagement, we cannot expect any self-directed reform from them," U.S. Rep. Kevin Brady (R-Texas) and U.S. Sen. Jim DeMint (R-South Carolina) wrote in a May 14th op-ed in the Wall Street Journal. 
The missive from the two members of Congress' Joint Economic Committee was spurred by a new report from the Republicans on that panel concluding that California, Illinois and Michigan are states with economic policies most like those of Greece. 
"States that have followed Europe's economic policy model of unbridled spending are getting Europe's economic results: low growth and looming fiscal catastrophe," the two Republicans wrote. "Congress must — in word and if necessary in law — make plain that the taxpayers will not protect these states from the consequences of their policies." 
The Joint Economic Committee Republicans' report suggested such states would do well to follow the example of Utah, New Jersey, Rhode Island and Wisconsin, which it said were the states most like Germany, considered "Europe's model of fiscal prudence." 
The report comes just as California announced its budget hole has grown to nearly $16 billion. But the state will get at least some assistance with that problem without having to go to Congress. Facebook's initial public offering this month is expected to provide billions of dollars in tax revenue for the state. (STATELINE.ORG, JOINT ECONOMIC COMMITTEE REPUBLICANS) 
State personal income tax collections grew an average of 7.3 percent in April, based on analysis of the 20 states for which data is available by Reuters. But that rate is considerably less than the 18.5 percent burst in April of 2011. And the range among states was wide, from a 44.9 percent gain in Indiana to a 13.4 decline in Rhode Island. 
California's collections were in positive territory, inching up 1.7 percent to $7.17 billion. But that was well below the state's $9.13 billion forecast, contributing to the $15.7 billion gap in next year's budget. Income tax collections in Pennsylvania were, likewise, up over last year — 8.3 percent to $1.7 billion — and below forecast, by $26.4 million. 
Kim Reuben, a senior fellow at the Urban Institute, attributes such discrepancies to states setting their expectations on last year's surge in collections. But she believes that "blip" was due in part to investors rushing to pay capital gain taxes before tax cuts enacted under President George W. Bush expired. 
"It turned out it was this non-wage growth, and that's not being sustained," she said. "But some states — California was the worst offender of this — built in that increase of income tax revenues into the bases of their forecasts." 
The good news, Reuben said, is that most states were more conservative. 
"They're not seeing new gaps," she said. 
But the slowing growth still worries state officials that their economies won't be strong enough to withstand threats like unemployment or Europe's financial turmoil. 
As Arturo Perez, who tracks fiscal issues for the National Conference of State Legislatures, put it, "We talk about how states went from the Great Recession to the 'Great Uncertainty.'" (REUTERS) 
BUDGETS IN BRIEF: CALIFORNIA's projected budget gap for next fiscal year has grown to $16 billion, up substantially from the $9.2 billion estimated in January, Gov. Jerry Brown announced this month. Brown issued a revised spending plan, calling for more cuts last week (LOS ANGELES TIMES). • CALIFORNIA will pay about $3.7 billion for public employee pensions next fiscal year, according to the California Public Employee's Retirement System. Although that total is more than the state currently pays, it is less than it had set aside for retirement-related expenses next year (REUTERS). • The Department of Transportation has warned CALIFORNIA that the $3.3 billion allocated for the state for high-speed rail as part of the economic stimulus will only be available until Sept. 30. The state's planned high-speed rail line has become bogged down in a high-stakes fight over its price and route (POLITICO). • MARYLAND lawmakers approved an income-tax hike on single residents making more than $100,000 and couples making more than $150,000 per year (WASHINGTON TIMES). • ARIZONA lawmakers passed a 25 percent income tax cut on capital gains this month that will be phased in over three years, becoming fully effective by 2016 (STATELINE.ORG, ARIZONA REPUBLIC [PHOENIX]). • MAINE will receive nearly $75,000 as part of a settlement between the Federal Trade Commission and footwear maker Skechers USA Inc. over unsubstantiated health claims about the company's products. The company claimed its Shape-ups shoes would help people lose weight and strengthen their muscles (BANGOR DAILY NEWS).

- Compiled by KOREY CLARK

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