Now that most state legislatures have adjourned for the year, it is time for a round-up on how Republicans and Democrats did on the tax issue. This matter is of particular importance to the GOP. Since state government often acts as a “minor league” for politicians with national aspirations, it is incumbent on Republican politicians at the state level to hold the line on taxes. After all, if the GOP doesn’t stand for lower taxes, what does it stand for? Unfortunately, every year there are Republican politicians who fail to get the anti-tax memo. This year the GOP zeroes were found in:
Alaska: Governor Frank Murkowski failed to win a $1 increase in the cigarette tax to fix the budget during the regular legislative calendar. So he has called for a special session in late June to try again.
Massachusetts: Governor Mitt Romney continues to make Taxachusetts worse — at least in the short term. This year he signed a bill lifting a business property tax cap to 200% above residential rates. It is currently at 175%. The law eventually reduces the cap back down to 170% — in 2009. Furthermore, Eileen McAnney, of Associated Industries of Massachusetts, complained that Romney’s proposal to improve the Department of Revenue would boost business taxes by $70 million.
Michigan: Democratic Governor Jennifer Granholm proposed hikes in the cigarette tax and liquor tax, and a new state inheritance tax. Thirteen Republicans In Name Only in the House aided Granholm by joining 42 Democrats to approve a 75 cent hike in the cigarette tax. The Republican speaker of the house, Rick Johnson, pushed for an even higher tax, precipitating threats of a no-confidence vote in the party caucus.
Nebraska: Republican Governor Mike Johanns initially proposed a budget without tax increases, despite a projected $217 million shortfall. He then turned around and agreed to a “temporary” 0.5 percentage point increase in the sales tax rate and an increase in the property tax levy for the school system from $1.05 to $1.10 per $100 of assessed valuation.
Ohio: Secretary of State J. Kenneth Blackwell is leading a tax revolt, attempting to get a measure on the ballot that would rescind the “temporary” sales tax increase imposed last year. Meanwhile, Governor Bob Taft (a.k.a. Governor Tax) shows he still doesn’t get it. To encourage job creation he wants to extend an enterprise zone tax credit, and create a Jobs Cabinet to focus on regulatory reform to help companies find skilled workers — as if employee recruitment were the business of government. He is calling for overhauling the state tax code, but he also said he wouldn’t rule out future tax increases to shore up the state budget.
Texas: Governor Rick Perry is calling a special session to deal with the Texas school funding system that he hopes will yield some $6 billion in property tax relief. It seems like a great idea until you realize that he wants to replace the school property tax with gambling revenue, cigarette taxes, adult entertainment tax (read “porn tax”), and ending a break against the corporate franchise tax. These measures will not only replace the $6 billion in property taxes, but yield over $2.5 billion more for schools, a net tax increase.
Vermont: Governor Jim Douglas seems a bit confused. On the one hand this Republican wants an across-the-board reduction in income tax rates, aimed heavily at lower and middle-class taxpayers, tax credits for health insurance, and a reduction in the corporate income tax rate, which, he complains, ranks 5th highest among all states. On the other hand, he calls for the elimination of the state capital gains exclusion to raise revenue to cover the personal income tax cut and close loopholes that allow multinational corporations to redirect profits to other states. There was no discussion on whether the high corporate rate is what causes corporations to redirect profits. Meanwhile, residents of Killington, Vermont, voted to join New Hampshire to avoid, among other things, Vermont’s income tax.
Virginia: Were there any bigger traitors to the anti-tax cause this year than the Republicans in the Virginia Statehouse? Democratic Governor Mark Warner went back on the no tax increase pledge he made in the election of 2001, and proposed hikes in sales and income taxes to balance the state budget. Apparently not realizing the political opportunity the Governor had just given them, 17 RINOs in the house of delegates and 15 RINOs in the state senate joined the Democrats to pass a $1.5 billion tax increase. Adding insult to injury was a report from the state Secretary of Finance about two weeks later showing that revenue collections for the past fiscal year had been far ahead of projections, suggesting that a surging economy might have solved the budget shortfall.
AS IT HAPPENS, THE GOP NEEDS governors (and state legislators) willing to cut taxes, because there is currently no shortage of Democratic governors who, at least this year, appear to understand that if they want to run for higher office, they need to neutralize the tax issue:
Arizona: Governor Janet Napolitano promised not to raise taxes to deal with a budget shortfall estimated to be between $800 million and $1 billion. On the down side, she has gone squishy on tax reform, despite campaigning on it. She continues to put it off, currently claiming that she is waiting for her Citizens Finance Review Commission to finalize its recommendations.
Illinois: Near the end of 2003 Governor Rod Blagojevich reaffirmed his pledge not to raise any general taxes to deal with state budget problem. But it depends on what the meaning of the word “general” is. He later called for closing $400 million in corporate tax loopholes to help deal with the budget. Despite the damage this reversal might do to a future presidential run by the governor, word has it that the most dangerous place to be in Springfield is still between Blagojevich and a TV camera.
Indiana: Despite a projected $1 billion budget shortfall, Governor Joe Kernan called for more property tax relief and continuation of a business tax credit program. His mood seemed to change somewhat, however, when the legislature took him seriously and passed an expansion of the business credits and eliminated some portions of the sales tax. Kernan reluctantly signed the bill, saying that he liked parts of the business credits yet complained that the bill “will cost the state revenue during difficult budget times.” It remains to be seen if Kernan will survive the challenge from GOP candidate Mitch Daniels.
Louisiana: Governor Kathleen Blanco is moving ahead with gradual tax reform in Louisiana after backing off the immediate change that she campaigned on.
New Mexico: Bill Richardson, fresh from cutting income taxes last year, won an elimination of the state sales tax on food and medical services this year. He also threatened to veto a gas-tax increase. Is there any governor who has done more to prove his anti-tax bona fides in the last two years than Richardson? Can you say 2008 (or 2012)?
Oklahoma: Governor Brad Henry pushed to lower the top income tax rate permanently to 6.75% and to eliminate capital gains taxes on property held more than five years. Thus far, the state senate has approved it.
NOW, BEFORE CONSERVATIVES start pressing the panic button, there are some Republican governors out there fighting for tax reform. Governors Ernie Fletcher of Kentucky and Mark Sanford of South Carolina pushed for income tax cuts this year, although both were thwarted by recalcitrant legislatures. Tim Pawlenty of Minnesota wants to make the state corporate income tax more business friendly, while in Florida Jeb Bush managed to get a nine-day sales tax holiday (July 24 to August 1 for those of you planning shopping holidays) and an 8 cent reduction in the gas tax for the month of August. Finally, Craig Benson of New Hampshire wants legislators to support a Taxpayers Bill of Rights that would limit increases in the state budget to the rate of inflation and changes in population and would require a two-thirds majority in the state house and senate to pass new taxes.
Yet the Republicans need more tax heroes; at present, they can ill-afford sellouts. When GOP governors and state legislators cave on higher taxes, they lose one of the GOP’s natural electoral advantages. This hurts their chances later on should they decide to run for U.S. Senate or even president. With many Democratic governors apparently getting wise to the tax issue, Republican politicians have diminishing room for error.