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States Seen Reversing Course and Heading Back to Tax Increases
Daily Policy Digest

State & Local Issues

Thursday, May 16, 2002
States are expected to raise taxes and fees a combined $2.4 billion in the fiscal year beginning July 1, according to a report from the National Governors' Association and State Budget Officers. And that, they say, is just the tip of the iceberg.

The amount was calculated without factoring in an increase of $2.03 billion in California -- an amount so big the estimate could almost double.

  • For now, most of the revenue increases through higher fees -- as well as larger cigarette and motor-fuel taxes.
  • The report also finds that states expect a 1.4 percent increase in spending.
  • The anticipated increases would reverse an eight-year run of state tax cuts.
  • The states are looking to the federal government to bail them out.
In the U.S. Senate, Maine Republican Susan Collins and Nebraska Democrat Ben Nelson are expected to introduce a federal relief package that includes $4.6 billion in block grants for health care and social services -- as well as $4.3 billion in additional Medicaid funds.

At the beginning of an economic downturn, states generally turn to "rainy day" funds they have set aside for just such an eventuality. But this time around, those funds are disappearing.

Source: Russell Gold, "States Are Seen Raising Taxes, Fees in Fiscal '03," Wall Street Journal, May 16, 2002.

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