In the wake of Republican state takeovers in the November mid-term elections, GOP-controlled states are looking at plans to slash income taxes and replace lost revenue with increased taxes on sales and consumer goods.
But some analysts are wondering if this a good approach for hard-pressed state budgets.
While at least ten GOP states are considering cutting income taxes, which conservatives believe hamper economic growth, the left-leaning Keystone Research Center
, noting that the highest-earning one percent pays 5.4 percent in state and local taxes while the middle 20 percent pays an average of 9.5 percent, says that taxing the top one percent at the same rate as the middle 20 percent would generate $88.5 billion per year in taxes. If the top 20 percent paid the same rate as the middle 20 percent, the taxes generated would amount to an additional $200.5 billion per year.
Instead, GOP governors and legislatures in some states are planning to increase taxes on consumer items such as e-cigarettes, gasoline and even, as Maine's Gov. Paul LePage suggests, haircuts and movie tickets, "which hit the poor and middle class harder than the rich," The New York Times reports
Erica Williams of the Center on Budget and Policy Priorities told the Times: "There are a lot of folks across the states who are very aware of the widening gap. It's good that lawmakers in the states, and maybe in some less typical states, are looking at how do we help folks in the low end of the income spectrum. But there are questions of whether some of these proposals really do that."
Most states are in need of more funds. In fiscal year 2015, state revenues will total $748.3 billion, more than the $726.1 billion generated in 2014 but, adjusted to inflation, actually a two-percent drop, Pew Trusts notes
Ohio Gov. John Kasich wants a 23-percent cut in income taxes over two years with an expansion of income tax exemption for low and middle income families. He plans to pay for it with higher taxes on tobacco, sales and the oil and gas industries, Pew reports.
Arkansas already has instituted a $100 million tax cut which gives middle income earners a one percent tax break, Pew notes.
In South Carolina, GOP Gov. Nikki Haley has proposed "the largest tax cut in the history of our state," her website boasts
, noting a cut from seven percent to five percent over the next decade, nearly a 30 percent reduction in income taxes.
On the business front, the American Legislative Exchange Council, which favors limited taxation, says that 14 states, including Arizona, Florida, Indiana, Kansas, Maryland, Michigan, Minnesota, Missouri, Nebraska, New York, Ohio, Oklahoma, Rhode Island and Wisconsin, enacted what the group calls "pro-growth" corporate tax cuts in 2014, The Washington Post reports
Keystone's Greg LeRoy said: "It's time to have a clear debate about the impact of inequality on public finance."
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