Thursday, January 18, 2007

The Way We Tax: A 50 State Report

For all you bloggers out there who are about to set out on the upcoming budget/tax battle, here is a handy resource from that breaks down the way all 50 states collect revenue.

Of course, the burden a tax system must carry varies from state to state. There is no such thing as a perfect structure, no template that all, or even most, of the states could use. One of the glories of the American system of governance is that states are free to offer different degrees of service to their citizens. The main commonality is that they must raise whatever revenue they need to meet their chosen level of service. Raising money to meet irresponsible spending doesn't make for a good tax system. But utilizing well-balanced streams of revenue and avoiding unsupportable tax cuts are critical, regardless of whether a state wants to have a Cadillac government or a Chevy.

You start to realize what we are up against here.

Creating and maintaining a high-quality tax system — and balancing it against the demands of its citizenry — may be one of the most difficult tasks any state, or any government for that matter, faces. The two sides of the equation are often out of whack. Consider this: When Pennsylvanians were surveyed last summer, the majority favored higher prescription drug subsidies for the elderly, more money for public education and better funding for higher education. They also, however, opposed any increase in the state’s sales tax or income tax. Gambling was the only new revenue source people favored.

Of course, this is unrealistic. But it’s the nature of the implausible and inscrutable world of state taxation, a world in which hyperbole is the native language and nitty-gritty politics trumps common sense. “It’s the old classic,” says Arkansas Governor Mike Huckabee. “Everyone wants to go to heaven, but nobody wants to die.”

Be sure and read that opening overview for a crash course on a nationwide problem.

This is from 2003, so some of the info might be a bit outdated, but it's nice to have links on hand of how "other states do it". For example, certain people are fond of pointing at golden-child Indiana as our competition here in Michigan. Many a panel has been convened-

Lieutenant Governor Joe Kernan pulled together a nonpartisan group to study the system and make recommendations for comprehensive change. The group, comprised of six professionals from outside government, met for five months and released a draft plan in preparation for the 2002 legislative session. It recommended property tax relief through a shift in school funding from local to state sources; elimination of inventory and gross receipts taxes; increasing the sales tax; and a move to a graduated tax on personal income, replacing the flat-rate tax.

The commission’s recommendations were the backbone of the reform package that passed the legislature last June. Under the new rules, the state assumes 60 percent of the property tax burden, allowing a 12.8 percent drop in the average homeowner’s bill. In addition, the homestead exemption doubles from 10 percent to 20 percent of assessed value. The regressivity of the system has been reduced by an increase in the earned income tax credit.

The state does not prepare a tax expenditure report, which would show the cost of forgone sales taxes. In-state experts say, though, that Indiana’s no better or worse than its neighbors, which means there’s room for improvement.

Go read for the rest of the story; certain parts of the recommendations didn't come through, and at that writing Indiana was still facing a budget shortfall. Not sure how they resolved it.

I also found this chart from 2004 that shows a breakdown of service taxes by state. This also might come in handy, and it is especially interesting when you match up the states that have "adequate revenue" to those that tax services heavily. (Delaware, Hawaii) Or, if they don't tax services but still have adequate revenue, there seems to be special circumstances as to how they avoid it. (North Dakota, Wyoming)

Have at it, numbers people. The battle is just beginning, and the future of our quality of life in Michigan is at stake in the outcome.

If you thought 2006 was fun, you ain't seen nothin' yet...