This year, lawmakers opted for targeted tax hikes as opposed to broad-based increases, despite being more economically distorting. Of the 32 states that hiked taxes this year, the following trends are of note:
- 14 states and D.C. raised cigarette taxes, more than any other type of tax this year. The trend continued despite the fact that tobacco tax collection is already coming in under projections.
- 8 states specifically went after small businesses and high-income earners by raising marginal income tax rates. While most were marketed as “millionaires” taxes, they kick in with incomes as low as $125,000.
- 8 states raised taxes on alcohol beverages, with many simply extending the state’s sales tax to include alcohol.
- 8 states raised taxes on internet commerce, known as eTaxes. Check out www.StopETaxes.com for more information.
Some other key findings:
- Tax cuts did not make state budget crises worse. In fact, states with budget surpluses in FY2009 actually cut taxes by over $105 million in the two years prior, while states with the largest budget gaps raised taxes well beyond other states – by over $370 million.
- Over the past two recessions state spending growth either matched or was below GDP growth. From 2005 onward, spending grossly outpaced GDP, causing a foreseeable gap in spending and tax revenues that cause the largest drop in tax collection in over 50 years.
- Higher income households move from states with high tax rates and burdens. Households that migrated from high-tax states had average incomes of $70,525 – above the national average of about $50,000. Households that specifically chose to move to low tax states had incomes of nearly twice as much, at $101,091.
Click here for the preliminary 2009 StateTax Trends report. At the end of 2009, ATR will be updating the publication to include more information on specific states, specific taxes, and other trends across the country. In the meantime, keep checking www.atr.org for state tax and budget updates.