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December 24, 2008

A lump of coal in our stockings: States to levy a bevy of new taxes

By Ed Lasky
As a tumultuous year limps to an end, state governors are planning to deliver more hits to our already battered pocketbooks. More taxes are coming our way. You may not recognize them because, transparency and honesty be damned, many of them will come disguised as fees, assessments, and whatever euphemisms can be pulled from a government thesaurus to obscure the truth. Donald Lambro of the Washington Times noted:

Governors want to levy higher taxes next year on clothes, soft drinks, gasoline, auto licenses and other items that likely will hit low- and middle-income families struggling to make ends meet in a deepening recession the hardest.


Officials say they are required by law to balance budgets and that tax increases are necessary as state governments face sharply declining tax revenues, but fiscal analysts say raising these taxes during an economic downturn will only worsen local economies and prolong the recession

Leading the way (down), as it often does, is New York. The Democratic Governor David Paterson wants to raise billions with new taxes and fees in the budget. These include a raft of petty-ante measures that may escape attention but that will collectively impose a stiff bill on New Yorkers. These include:

* An "iTunes tax" of 4 percent on videos, music or pictures downloaded from the Internet.

* A 4 percent tax on taxi, limo and bus rides. That means a $10 cab ride would cost 40 cents more.

* A 4 percent entertainment tax on tickets to movies, concerts and sporting events. That would add nearly 50 cents to a $12 movie ticket or $1.80 to the cheapest $44.50 seat at a Knicks game.

* The tax on beer increases 24 cents per gallon, or more than double the current rate, which means about 30 cents a case.

* An 18 percent tax on nondiet soft drinks, which aims to reduce child obesity. A $1.50 can of Pepsi would then cost at least 25 cents more.

* A 4 percent tax on cable TV and satellite services, raising a $100 bill by $4.

* Hiking the cost of "personal" services - including haircuts, manicures, pedicures, massages and gym memberships - by 4 percent.

* A 4 percent sales tax on clothing and shoes under $500, except for two weeks out of the year.

* Elimination of the law that caps the state sales tax on gasoline at 8 cents per gallon.

* Boosting the average vehicle registration fee for drivers by $11, from $44 to $55. Fees for new or renewed licenses also would increase 25 percent, or increase from $50 to about $62 to renew a license over eight years.

In addition, all drivers would have to get new, "reflectorized" license plates at a fee of $25 each.

However, New York is not alone.

Another coastal state is gearing  up to impose new taxes. Can you guess which one?

California -- a repeat offender.

California is particularly interesting because Democrats in the state legislature are trying to pull a fast one over its citizens.  California's constitution requires a two-thirds majority of the legislature to raise taxes. Republicans, thankfully, hold enough seats to prevent new taxes. Governor Schwarzenegger also want to hold the line on new taxes and is demanding long term budget reforms and economic stimulus measures as a quid pro quo (a stance that does not please fellow  Republicans who resist the new taxes).

How are Democrats to avoid this de facto veto on their plans?  The magical powers of euphemism comes into play again.

They plan to call these new tax increases "fees" (watch for that word in the years ahead) which they claim are not covered by the constitutional requirement. Among the new "fees" planned:

Under the plan, the gas tax would roughly double to 36 cents a gallon and taxpayers would be hit with 2.5% income-tax surcharge. These "fees" sound awfully like taxes. California already has one of the highest income tax burdens in the nation.

The Los Angeles Times, a newspaper that apparently has never met a tax that it did not support, has called for the Gordian Knot to be cut. The paper's lead editorial yesterday just called for the complete abolition of the super-majority law. Oddly enough, the paper cites the history of the law without appreciating its message. The law was passed during the Depression when the state recognized that increased taxes were not the path towards prosperity during a time of economic distress as we are enduring now.

Democrats are eager to get their hands on taxpayer dollars to fund what is projected to be a $42 billion dollar deficit. But the Republican leader in the state senate, Dave Cogdill,is principled in his opposition:

We're not going to agree to tax increases. Period. High taxes are what are killing this state."

Yes. High taxes and burdensome regulations are killing California.

As Investors Business Daily points out in an editorial:


California is already the most costly place in America to do business, according to the Milken Institute's business cost index. Its business costs in 2006 were 23% higher than the average for the rest of the states, and well above those of its neighboring states.

Worse, energy costs are already 35% higher than the national average. With California's costly new CO2 mandates about to kick in, the economy could well grind to a halt.

Such business mainstays as Intel, Exxel Outdoors, Toyota and Tesla have already left California. Intel is a particularly alarming example: The world leader in chip technology started in Silicon Valley but no longer makes anything in California.

Since 2001, according to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs. Today, the state's jobless rate of 8.4% is third-highest in the nation.

Even Hollywood feels the pinch. In 2003, 66% of Hollywood's feature films were made in-state; today, it's down to 31%. Increasingly, Hollywood is a state of mind -- not a place to do business.

Things are so bad that, just last week, 25 business groups wrote an open letter to the state's legislature begging it to think about the role businesses play in the economy.

The only business that seems to be doing well California is the one catering to people moving out of the state: U-Haul. Similar migrations to greener (the color of money) pastures are happening in New York and other high-tax states  -- people are leaving Taxachusettes to go to New Hampshire, Maine and other relatively low tax states.

What Democrats seem to ignore (perhaps because so few of them have a business background) is the need to focus on outflow as well as inflow. Their efforts to tamp down spending are sporadic, weak, and also capable of being spun to try to lead people to believe that budget cuts are deep and painful when they actually are not.

Paterson may want to impose an anti-obesity tax on his citizens (the "fees" on soda) but has only a limited interest in slimming down his own budget. His own budget -- despite claims by Paterson supporters that it contained aggressive cuts that would leave "blood in the streets" -- actually grows the state budget.

Where are taxpayer dollars going?

As E.J. McMahon writes in a New York op-ed:

If New Yorkers are now experiencing "the greatest economic and fiscal challenge of our lifetimes," as Paterson's budget presentation appropriately called it, it's hard to justify such items as:

* $45 million for the state Council on the Arts (twice the per-capita average for such agencies in other states).

* $78 million for the chronically troubled Statewide Wireless Network.

* $58 million for added park and open-space land acquisition.

* $46 million for stem-cell research (already heavily funded by private firms and the federal government).

* $65 million in tax credits for (mostly wealthy) film producers.

* $8 million for a scenic pedestrian walkway over the Hudson River.

The Democrats are growing adept at using euphemism and Orwellian language to obscure the truth from the taxpayers. This belies their claim to be the party of transparency and honesty.

Since the powers-that-be seem to lack plans to tackle the budget crisis, critics have come to the fore.

Kenneth Adams wrote an op-ed in the New York Post calling for some sensible measures:

LET'S admit it: New York is grappling with a fiscal crisis largely of its own making. The national recession and Wall Street meltdown magnify the problem, but New York has a $15 billion budget deficit not because we don't collect enough taxes, but because we spend too much.

To avoid being in this terrible situation again, we have to leverage this current crisis to achieve long-term reforms in government spending and fiscal policy.

Our No. 1 priority should be a cap on state spending -- an annual limit on the increase in state spending that would, in turn, drive many other badly needed reforms.

State and local spending in New York is now the second highest in the nation -- 47 percent above the national average. A spending cap would help bring this excess under control.

It's clear where much of this overspending is centered -- and that it doesn't actually buy us better government services.

For example, we have the highest per-pupil education spending in this country -- nearly $19,000 per student, 63 percent above the national average. Yet we're 33rd in the nation in eighth-grade math scores and not much better on other pupil-performance measures.

And New York's per-capita Medicaid spending is more than double the national average, according to Kaiser State Health Facts. Yet, despite this off-the-charts spending, our key health-care indicators are worse than the national averages.

On the other side of the ledger, our personal-income and real-estate taxes are the highest in the country. Business taxes are the second highest. The result is the worst tax climate in America, and an economy that was already tanking before the downturn.

In terms of personal-income growth from 1995 to 2005, New York ranked 42nd among the 50 states. Even with what seemed to be a booming city economy, our state was among the nine worst-performing economies in the entire country.

All this has been driving people away. Since 2000, New York has led the nation in the number of residents moving to other states, according to the Census. Each year we suffer a net loss of more than 200,000 New Yorkers - that is, we basically lose another Syracuse every 12 months.

The Post takes aim at Democrats but will credit one Democrat with a sensible plan to trim the budget: Andrew Cuomo, the state's Attorney General who has called for property tax (which are enormous in New York) relief by merging a myriad of local government and "special districts" into more efficient (a relative term when it comes to government) jurisdictions.

Will these voices be heard by the powers-that-be who are pushing these taxes -- I mean "fees" -- onto taxpayers already battered by the stock market and job losses?  Democrats need taxpayer money to feed their constituencies (public sector employees, special interest groups, teacher unions).

Democrats do seem sensitive to the political implications, hence, their efforts to disguise their actions and spread the pain by imposing annoying fees on a wide range of services and products. The gamble? Their constituencies will appreciate Democratic largesse more than taxpayers will feel the pain of more "fees".

Is there a political opening for the Republican Party? Federal  tax rates have not been an important issue for voters (the fact that these taxes came down so much during the Reagan and George W. Bush presidencies has minimized the importance of this issue; the GOP is a victim of its own success).

But state taxes have increasingly become a hot topic. Massachusetts residents were upset enough about their income taxes that they gathered enough support to have an initiative to repeal the state income tax vote on the November ballot (it failed). As taxes and fees take their toll on the electorate, expect more efforts by people to take their future into their own hands.

The Republican Party should be ready to capitalize and channel this voter angst about increased taxes and fees. The party should lead the way in publicizing efforts by Democrats to impose these on us-and should highlight the sneaky way Democrats in California are trying to evade the law and on efforts by Governor Paterson to spin his "budget cutting". Perhaps, the increased intrusion of government in our everyday lives might be a linchpin to bring disaffected Libertarians back into the Republican fold.

In the mean time, enjoy the holidays for they may be the last ones before a wide range of taxes-nee fees-come your way.

UPDATE

As if on cue, the Wall Street Journal publishes an article about the wave of new and higher state taxes coming our way.

Ed Lasky is news editor of American Thinker.
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