On Monday, the Supreme Court ruled that states may offer special tax breaks to residents for investing in municipal bonds issued by them and local governments within the state. The 7-2 decision, in Kentucky Department of Revenue v. Davis was widely expected. But even if the Court wanted to bar states from preferring their own bonds over those from other jurisdictions, the current troubles of the $2.6 trillion municipal bond market probably made that impossible.    more »

While TaxVox and others have disclosed the folly of a federal tax holiday, some have suggested that temporary state gas tax relief might work better. Some New York State legislators are already pushing for such a plan. But before cash-strapped states jump on the bandwagon, they might consider how a previous experiment in Illinois and Indiana worked out. In 2000, Indiana announced that it would be suspending its 5 percent gasoline sales tax for 120 days beginning July 1. In response, Illinois also suspended its levy for six months that July.. Quaint as it seems today, the changes were spurred by a spring spike in Midwest gas prices to (gasp) $2.00 – a level drivers would now gladly embrace.    more »

think I need a drink. Yesterday at TPC, a panel of experts looked at what the credit mess means for state and local governments. The answer is: Nothing good. I felt like I was watching the final minutes of the Super Bowl with a room full of New England Patriots fans.    more »

California's health care reform may be the first victim of the economic downturn. Governor Arnold Schwarzenegger's ambitious $14.9 billion plan to reform the state's health insurance system has crashed, in part because it was unclear proposed funding sources would raise enough revenue to ensure the program's viability in the face of a deteriorating budget environment. The state is facing a $14.5 billion deficit.    more »

Six months ago, states were predicting balanced budgets and surpluses. Virtually all had surpluses at the end of fiscal year 2007 and more than half had ending balances equaling at least 10 percent of their general funds. Governors and legislatures were happily talking about property tax relief and expanding medical coverage to the uninsured.   more »

Bloggers have had a field day ridiculing a year-old decision by the Iowa Department of Revenue that would subject certain pumpkins to state sales taxes. True, the decision was worthy of a Halloween chuckle, but the gigglers are missing the point.   more »

An awful lot of Democrats suddenly seem to think that senior citizens are overtaxed. Presidential hopeful Barack Obama wants to exempt seniors making less than $50,000 from paying any federal income tax. House Ways & Means Committee Chairman Charlie Rangel (D-N.Y.) has tucked a new $700 above-the-line deduction for real estate taxes into his proposal to extend Alternative Minimum Tax relief for another year. While Rangel doesn’t say so, seniors who have paid off their mortgages and no longer itemize would be big beneficiaries of the new tax break.    more »

The wildfires in Southern California should have taught us two major lessons: State and local governments need to be better prepared for predictable disasters and, when it comes to emergency services, you get what you pay for.   more »