States broke? Maybe they cut taxes too much

WASHINGTON — In his new budget proposal, Ohio Republican Gov. John Kasich calls for extending a generous 21 percent cut in state income taxes. The measure was originally part of a sweeping 2005 tax overhaul that abolished the state corporate income tax and phased out a business property tax. The tax cuts were supposed to stimulate Ohio's economy and create jobs. But that never happened once the... [more]

WASHINGTON — In his new budget proposal, Ohio Republican Gov. John Kasich calls for extending a generous 21 percent cut in state income taxes. The measure was originally part of a sweeping 2005 tax overhaul that abolished the state corporate income tax and phased out a business property tax. The tax cuts were supposed to stimulate Ohio's economy and create jobs. But that never happened once the economy tanked. Instead, the changes ended up costing Ohio more than $2 billion a year in lost tax revenue; money that would go a long way toward closing the state's $8 billion budget gap for fiscal year 2012. A 2008 study by Arizona State University found that that state's structural deficits could be traced to 15 years of tax cuts, mainly income-tax reductions that "were not matched by spending cuts of a commensurate size." In Texas, which faces a $27 billion budget deficit over the next two years, about one-third of the shortage stems from a 2006 property tax reduction that was linked to an underperforming business tax. In Louisiana, lawmakers essentially passed the largest tax cut in state history by rolling back an income-tax hike for high earners in 2007 and again in 2008. Without those tax reductions, Louisiana wouldn't have had a budget deficit in fiscal year 2010, the 2011 deficit would've been 50 percent less and the 2012 deficit of $1.6 billion would be reduced by about one-third, said Edward Ashworth, the director of the Louisiana Budget Project, a watchdog group. "If state and local taxes were at the same percentage of state personal income as they were 40 years ago, you wouldn't have all these budgetary problems," Bartik said. Before California's Proposition 13 triggered a nationwide tax-cut revolt in the late 1970s, state and local taxes accounted for nearly 13 percent of personal income in 1972, Bartik said. By 2007, it was 11 percent. State corporate income taxes have fallen as well. Once nearly 10 percent of all state tax revenue in the late '70s, they accounted for only 5.4 percent in 2010. Read more: http://www.miamiherald.com/2011/03/28/2138192/states-broke-maybe-they-cut-taxes.html##ixzz1HvdPu8RN [less]