State Revenue Woes
State revenues are collapsing with the economy. A new study from the Nelson A. Rockefeller Institute of Government reports that state tax collections fell in the last quarter of 2008 for the first time since 2002 (see graph). Not only did the volatile personal and corporate income tax revenues drop but so did the usually more stable sales taxes—declining by 6 percent before adjusting for inflation.
The situation is going to worsen before it gets better. Every state’s economy showed decline in February (see map from the Rockefeller report) and no one expects improvement soon. So states will almost certainly watch their revenues fall further and, like the federal government, face worsening fiscal conditions.
Sources……
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The problem is political courage in many cases. The vast majority of property tax payers have not had personal declines, yet local government is loathe to raise rates, even though the value of the services provided is the same and they are needed at the same amount.
Consider how bad it would be for government if the national government relied on Land Value Taxes. Again, the political courage for a signifant rate increase would not necessarily be there, even though the reason for such taxes – to normalize land values – would have been achieved.
If the tax system were also used for all subsidies, through an expanded child tax credit, the regular payment of that credit would have the function of bouying the economy – so we would not have the problem of massive budget retrenchment.