Tags: recession | economy

Study: Recession Led Most States to Cut Services

Friday, 05 Nov 2010 03:56 PM

Almost all states have had to cut spending on services and more than half have raised taxes since the recession began, according to a think-tank report released on Friday that warned more tax hikes could be on the horizon.

At least 46 states and the District of Columbia have cut services, the Center on Budget and Policy Priorities found. Most states have looked to payrolls for savings, with 44 slashing their workforce, followed by 43 states cutting funds for higher education.

Because most states must end their fiscal years with balanced budgets, they have had to turn to spending cuts and tax and fee increases to eliminate budget gaps.

As a result of the longest and deepest recession since World War Two, more than 30 states have raised taxes, CBPP said. Although the recession officially ended last summer, states have yet to experience any significant recovery.

"Many more states will need to consider tax increases or other revenue measures, as well as such steps as tapping remaining state rainy day funds, as a way to minimize harmful budget cuts," the report said.

According to CBPP, states had to close budget gaps equal to $125 billion for the current fiscal year, which for most started in July, and 39 states have already projected gaps totaling $112 billion for next fiscal year.

There may be resistance from the public to tax hikes, though. Voters in some states on Tuesday approved ballot measures limiting their state governments' ability to increase taxes and the Republican sweep of the U.S. House of Representatives has been read as voter distaste for taxation.

"Tax increases can be less detrimental to state economies than budget cuts because some of the tax increases affect upper-income households, so are likely to result in reduced saving rather than reduced consumption," said CBPP.

The think-tank, which closely follows state budgets, said state fiscal conditions will be hurt by persistent unemployment, which drives down tax revenue and increases demand for services.

A government report on Friday provided some hope that the employment slump could end soon, showing U.S. nonfarm payrolls rose 151,000 in October in the first gain since May and more than double economists' expectations.

But the Labor Department data also showed that states and local governments are not banking on a recovery just yet. State payrolls were flat last month while local governments shed 7,000 jobs, pointing to ongoing pain in the public sector.


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Economy
Almost all states have had to cut spending on services and more than half have raised taxes since the recession began, according to a think-tank report released on Friday that warned more tax hikes could be on the horizon. At least 46 states and the District of Columbia...
recession,economy
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2010-56-05
Friday, 05 Nov 2010 03:56 PM
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