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Some Governors Are Getting It Right on Taxes

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Oftentimes in public policy, particularly when national politics is frozen, you have to look to governors and states to see what's coming. They can't run budget deficits, it's harder for them to run around squawking about stuff without doing much about it--basically, they've got to run stuff like education, protective services, infrastructure programs.

And again, unlike Congress, you can't run that stuff by touting the growth magic of supply-side tax cuts...I mean, some governors do, of course, but they can't stop there. Which is why we're seeing many of them, dozens according to this piece from The American Prospect, raise new revenue (note excellent quote from my CBPP colleague Jon Shure).

I'm writing from Sacramento this AM, where, according to the banner headline in the Sacramento Bee "Brown, allies strike tax deal" on a revenue proposal to go on the November ballot out here (little rule of the trade here for fellow members of the travelling punditry: read the paper of the place you wake up in).

Tax measures to raise new revenue may also make it to the ballots in KY, MD, MA, NY, NC, RI, PN, and WA, and note that some of these gov's are R's. Proposals are likely to range from base-broadeners, like ending exemptions for favored goods under a state sales tax, taxing online sales, new fees, and higher income tax rates. Many plans, like the CA one, combine both a sales tax increase (from 7.25% to 7.5%) with an income tax increase on high earners. It would then be slated to expire after seven years.

Obviously, the sales taxes are more regressive than the income taxes targeted at the wealthy. Many of the sales taxes are "Pigovian," e.g., on soda or cigarettes (WA is contemplating a registration fee on "roll-your-own" cigarette retailers).

One thing you're seeing a bit of that strikes me as smart: tying a tax to a valued service. It's a lot less resonant to say "we must raise more revenues to meet our budget" than "we're going to add a surcharge to oil production to pay for schools." The more granular the better, as in not just "pay for schools" but "to renovate our schools to be more energy efficient" or to "bring down our student/teacher ratios."

Of course, state legislatures will block many of these proposals but notably, the Bee reports that the compromise measure described above was polling at 63% approval in recent weeks.

I'm aware that writing in support of tax increases won't win you a lot of friends, but frankly, this is nothing more than a reality check. We can't balance budgets at any level of government on spending cuts alone. Candidates running for president may argue otherwise, but it's good to see people who actually have to get stuff done beginning to argue otherwise.

This post originally appeared at Jared Bernstein's On The Economy blog.

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