Daily Updates

June 29, 2013

States find ways to raise taxes without saying so

If Pennsylvania’s Republican governor gets his way, the state will pay for $1.8 billion in transportation improvements largely by raising a wholesale tax on gasoline. Yet, his spokesman insists, “it’s not a tax increase.”

In New York, Democratic Gov. Andrew Cuomo and Republicans who share control of the Senate boast that they have balanced the budget without raising taxes, even though a critical part of the balancing act involved extending an income tax on high earners that both sides had campaigned against in 2010.

As state government leaders struggle to reconcile public demand for services with still sluggish post-recession tax collections, they have turned to tax increases — but will call them anything but. Governors and lawmakers in several states have labeled their ideas extensions, surcharges or fees and used verbal gymnastics to explain why they aren’t tax increases.

“Anything to avoid using the ‘T’ word is explored. They’re ‘revenue enhancements’ or ‘lifting of caps’ or ‘impact fees,”’ said Matthew Brouillette, president of the Harrisburg-based Commonwealth Foundation, a conservative think tank.

“Of course,” he added, “the ultimate result is that more money is coming out of taxpayers’ wallets.”

Raising taxes this year also puts a little breathing room between the laws passed in state legislatures and lawmakers’ 2014 campaigns for office. Still, any opponent would likely seize on such a vote no matter when it was taken, so the labels become part of a delicate dance for politicians searching for both sources of revenue and votes for their re-election.

Strategies include taxing corporations or the wealthy more heavily while emphasizing resulting tax cuts for the middle class, or taxing businesses that will inevitably pass along the increases.

In Georgia, Republican Gov. Nathan Deal engineered an end-run of a politically sensitive vote on the renewal of a tax on hospitals that generated more than $230 million, which was used to secure about $450 million in additional federal Medicaid money this year.

Lawmakers were reluctant to jeopardize the federal funding, but many Republicans feared primary challenges next year if they voted to extend the tax, so Deal and his allies proposed replacing it with a “provider fee” designed to work the same way. Both chambers overwhelmingly approved it and the governor signed it in February.

In Connecticut, where the governor and his Democratic allies in the General Assembly touted a budget with no new taxes, this year’s adjustments included extending a 20 percent increase on the state corporation tax that had been set to expire June 30. House Speaker Brendan Sharkey said it’s debatable whether such actions are tax increases and sought to focus on residents rather than businesses.

“What most people care about is whether their income taxes are going up, whether their sales taxes are going up, not whether corporate taxes are going up. Those are not happening,” Sharkey said this month.

In Delaware, Gov. Jack Markell and fellow Democrats who control the Legislature suggested they were actually cutting taxes by making certain temporary tax increases permanent. In those cases, they argued, the permanent rates are slightly lower than the temporary rates were at their peak. But the permanent rates are higher than the rates in place before the temporary increases were approved in 2009.

Pennsylvania Gov. Tom Corbett, who ran for office on a no-new-taxes pledge, waited until the third year of his term to advocate a plan that would accelerate badly needed highway and bridge projects and bolster financing for mass transit. Negotiations on the details continued behind closed doors days before lawmakers are expected to take their summer break.

The projects would be paid for mainly by an increase in a tax on the fuel that distributors sell to gas stations.

Right now, the tax is assessed on only the first $1.25 a gallon. Corbett proposes to phase in an increase over five years, until ultimately the full price of wholesale gas would be taxed — increasing the tax by 28.5 cents a gallon at current prices.

“This is not a new tax, nor am I proposing to increase the rate of the existing tax,” the governor said in unveiling the plan in February. “I am simply saying the time has come to apply it to the full value.”

It remains unclear how much of the increase would be passed on to consumers. Corbett spokesman Kevin Harley asserted that fluctuations in crude-oil prices and other factors could erase the increases that the administration projects.

“You can’t say that it’s a tax increase ... because there are so many variables that go into the price of gasoline,” he said.

In New York, the extension of the tax on millionaires and a $500 million tax on business that had been scheduled to expire next year were critical to this year’s state budget deal.

The millionaires’ tax was originally approved in 2009 at the height of the state’s fiscal crisis and was slated to expire in 2011. Cuomo and Senate Republicans both opposed it during their 2010 campaigns, calling it a “job killer,” but then approved two extensions. The second one kept the tax alive until 2016.

Politicians in both parties emphasize that the budget keeps spending in check and reduces taxes on the middle class. They also approved $350 rebate checks to be mailed out to most families with children next year, beginning weeks before Election Day.

“The public wants a free lunch” and that’s part of why elected officials eager to please constituents respond by devising creative ways to raise revenue or giving new names to tax increases, said Doug Muzzio, a political science professor at Baruch College in New York City.

“Raising taxes is verboten. You can’t do it, but you have to do it,” he said. “It’s ubiquitous.”

 

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