States Turn to New Taxes as Things Get Tough

Dot-com denizens weren’t the only ones flying high during the economic boom of the late 1990’s. State governments also went on spending sprees. And now that the boom has gone bust, the bills are getting harder to pay and state politicians are turning to some sour medicine in the form of new and higher taxes.

To accommodate those programs and new terror-related spending in the face of the first state revenue deficits since the 1980s, state lawmakers are raising taxes on everything from income and sales to tobacco and gasoline. And taxpayers are not too happy about it.

"States lost all sense of fiscal discipline during times of prosperity," said Jonathan Collegio of Americans for Tax Reform. "It’s unsustainable. Now states are committed to programs they can’t fund."

In Connecticut, Republican Gov. John Rowland, who for almost two terms refused to raise any taxes, swallowed his pride and agreed to raise the cigarette tax 60 cents to $1.11 per pack last week.

"There are those who feel it will help cut down on smoking. While the governor acknowledges that might be true, he also recognizes that the state is facing a deficit of $350 million," said Dean Pagani, a spokesman for the governor’s office.

And Rowland isn’t the only one turning to cigarettes, booze and other so-called "regressive" taxes that tend to impact lower-income taxpayers the most. New York recently raised its cigarette tax to $1.50 per pack, the highest in the country, and similar increases are pending in Virginia, Kentucky, and Tennessee.

While American Lung Association President John Kirkwood recently called such taxes "a simple, politically viable and fiscally smart solution" to what he terms a public health crisis, others say it’s a bad way to keep up wasteful government spending.

"It’s ironic, that some of the lowest of the low income individuals are hardest hit by them (taxes)," said Pete Sepp of the National Taxpayers’ Union.

These new taxes aren’t limited to tobacco. Governors and lawmakers across the country are blaming the recession and increased costs incurred by states in the war on terrorism for new sales, income, Internet and gasoline taxes, among others. Right now, lawmakers in Kansas, New Jersey, Indiana and Michigan are grappling with new or additional taxes of some sort or another.

In Virginia, lawmakers want voters in November to approve hikes in the sales and income taxes to pay for road and education projects. In nearby Baltimore, Mayor Martin O'Malley has suggested that the state raise income taxes by reversing the eight percent income tax cut implemented over the last five years.

Tennessee might also be headed for its second big battle over a new income tax, which taxpayers successfully defeated in 2001 after a near-riot at the state capitol. Two-term Republican Gov. Don Sundquist, who twice pledged not to institute an income tax, has changed his mind and proposed a flat tax of 3.25 percent to be partially offset by cuts in some sales taxes.

Not everyone is buying the "no way out" excuses being bandied about in state capitols and governors’ mansions.

"It’s truly unfortunate, because the notion of old-fashioned belt-tightening is missing from all of the patriotic speeches about banding together to fight this war on terrorism," said Sepp. "They are all proceeding forward, Republicans and Democrats alike, without rethinking some of their spending practices over the years."

Pagani said Connecticut’s Gov. Rowland is mindful of that, and has proposed $200 million in spending cuts along with his tax hikes. "It’s in the hands of the legislature now," he said. But tax critics charge that lawmakers — surrounded by lobbyists, and facing re-election soon — are in no hurry to begin slashing programs.

"No one really wants to tighten the belt," said Collegio. "It’s really problematic."

Tennessee State Sen. Marsha Blackburn expects another tough fight over Sundquist’s proposals there. "In my opinion, there will be as much resistance as last year, people are really tired of being burdened with taxes," she said.

"We have had very good times and added a lot of new programs and an incredible amount of spending," and now it’s time to cut back, she said. "I think we have reached a point in our society where people are going to require their government to do that."

The Associated Press contributed to this report