Ask AP: Income taxes, states without budget woes

The long-running recession has caused big problems with state budgets, forcing legislatures around the country to consider tax hikes and deep spending cuts to keep from running big deficits.

Have any states managed to avoid this sort of budgetary mess – and, if so, how?

That's one of the questions in this edition of "Ask AP," a weekly Q&A column where AP journalists respond to readers' questions about the news.

If you have your own news-related question that you'd like to see answered by an AP reporter or editor, send it to newsquestions@ap.org, with "Ask AP" in the subject line. And please include your full name and hometown so they can be published with your question.

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When did the income tax get enacted in the United States, and how did our forefathers finance government operations before then? We incurred some rather hefty expenditures as a young nation, such as the building of the White House and the U.S. Capitol, not to mention the Lousinana Purchase of 1803.

Linda Weigel

Aurora, Ill.

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The 16th Amendment to the Constitution, ratified in 1913, granted Congress the power to impose taxes on personal income. Congress enacted an income tax in October of that year. A federal income tax imposed before the amendment had been ruled unconstitutional by the Supreme Court in 1895.

For much of the nation's history before the income tax, the federal government raised money from import and export taxes, as well as excise taxes on liquor and tobacco.

The government imposed an income tax during the Civil War, but it was repealed after the war. Taxes also were levied on playing cards, feathers, iron, leather and drugs to help pay for the war. They, too, were repealed when the war was over, according to a history of U.S. taxes published by the Treasury Department.

In 1899, the federal government sold bonds and doubled taxes on beer and tobacco to pay for the Spanish-American War. The government even imposed a tax on chewing gum, according to the Treasury history. All the new taxes, however, were repealed after the war.

Stephen Ohlemacher

Associated Press Writer

Washington

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Are there any states that do NOT have major budget problems right now? If so, what are these states doing differently to keep their finances in order?

Richard E. Dimond

Springfield, Ill.

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The nation's deep recession has caused a plunge in state tax revenues, leaving most to grapple with the most severe budget problems in a generation.

Still, a handful of states have managed to remain relatively solvent. Most are states with small populations that are rich in oil or other tax-generating natural resources, including Alaska, North Dakota, South Dakota, Montana and Wyoming.

Arkansas has also managed to avoid the problems plaguing most states, largely through its approach to budgeting. The state's Revenue Stabilization Act sets up different funding categories based on expected revenues. Category A is the highest priority and typically includes public school funding.

The stabilization act has been credited with helping the state build up a surplus in recent years.

Beth Fouhy

Associated Press Writer

New York

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In the past year's coverage of hostilities in Iraq I have heard very little about the state of the oil infrastructure. How are current export quantities and income?

Stephan Vertal

Forest Grove, Ore.

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Although Iraq sits on the world's third-largest oil reserves, with at least 115 billion barrels, the country is producing and exporting far short of its potential due to decades of war, a lack of investment, U.N. sanctions, a brain drain and insurgent attacks.

Its production is around 2.3 to 2.4 million barrels a day. Exports averaged 1.885 million barrels a day in the second quarter of this year, up from about 1.8 million barrels in the first quarter. Revenues in the first half of the year stood at about $16.14 billion.

Iraq hopes to produce an additional 300,000 to 500,000 barrels per day by the end of 2010 through an emergency plan started earlier this year to drill new wells and install production plants in a number of oil fields in southern Iraq. The country plans to produce 4.5 million barrels a day by 2013 and up to 6 million barrels a day by 2015.

The overall fall of oil prices since last year has forced the government to slash spending plans for this year from $79 billion to $58.6 billion. The oil sector represents about 65 percent of the country's gross domestic product and its revenues account for 95 percent of Iraq's earnings.

Sinan Salaheddin

Associated Press Writer

Baghdad

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Have questions of your own? Send them to newsquestions@ap.org.