States Look to Increase Taxes to Meet Budget Shortfalls

States seeking justification for increases in cigarette and other sin taxes got what they were looking for Tuesday when the National Governor's Association released its report saying that states earned almost 15 percent less revenue from individual income taxes in the first four months of this year than it budgeted.

The need for tax increases also comes from big drop-offs in areas such as capital gains, interest and dividends, the report said.

"We used to have the April surprise and it was up. We used to have a positive April surprise. This year we had a huge surprise, unfortunately it was down," said Ray Scheppach, executive director of the National Governors' Association.

The report said no relief is in sight for states crunching budgets to meet the decreased revenues.

"It's a double whammy — not only did you not have the money you thought you had for last fiscal year, but you now have to revise dramatically downward your revenues for the coming year," Scheppach said.

Some states have seen income tax shortfalls as high as 25 percent to a nationwide total of $14.5 billion so far this year. Expected total revenue shortfalls will run about $40 to $50 billion this year, or 8 to 10 percent of state tax revenues from last year, the report said.

Many states have cut spending by up to $15 billion and used rainy day funds for shortfalls, but gasoline, casino, and cigarette taxes are on the horizon for many states. A few others are considering increasing personal income and sales taxes, the state survey revealed.

The report was conducted by the Federation of Tax Administrators, National Association of State Budget Officers, National Conference of State Legislatures, and Nelson A. Rockefeller Institute of Government of the State University of New York.

The Associated Press contributed to this report.