States' Budget Woes Could Raise Taxes
June 26, 2015
State finances across the United States have been described as stable but slow growing. Six years into the post-recession economic recovery, that statement may be accurate, but the full truth may be more troubling.
- More states have been unable to complete budgets so far this year than is typical, and the situation points to long-term spending problems — from K-12 education to Medicaid and infrastructure — that will persist.
- Overall, state reserve funds are at 7 percent of spending, but there are 15 states with less than 5 percent in reserve funds for fiscal 2016.
- Social benefit (Medicaid), consumption (public employees) and investment spending by the states has experienced a sea change, falling 18 percent since the start of the recession, with net investment down by more than 55 percent, according to the Bureau of Economic Analysis.
- States that have high reliance on personal income taxes, particularly reliance on taxes on non-wage income (stock gains), are also facing fiscal challenges. (California and Colorado for example).
- U.S. Census Bureau data shows that spending by state and local government on construction fell by $50 billion at annual rates (16.4 percent) between the fourth quarters of 2007 and 2014.
The Government Accountability Office (GOA) projects the peak in state tax receipts — 2007 — will not occur again until 2058. The GAO estimates that during the 50-year period, states would have to reduce state and local government spending by 18 percent or increase tax revenue by a similar amount — or some combination of the two — to close the fiscal gap.
Source: Eric Rosenbaum, "States' Budget Squeeze Could Mean Higher Taxes for You," The Fiscal Times, June 23, 2015.
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