Sept. 19, 2011
States Cut Taxes…Or Did They?
For the first time in 10 years, states reported that they cut taxes more than they increased them. But what looked like a cut on many ledgers were actually temporary tax increases that were allowed to expire in several different tax categories. This “cut” in taxes does not mean states’ have recovered from the Great Recession. Most states continued to face large budget shortfalls during their 2011 legislative sessions, and before enacting fiscal year fiscal year (FY) 2012 budgets, 38 states and Puerto Rico faced a collective budget gap of at least $91 billion.
The National Conference of State Legislatures has released its 2011 “State Tax Update” report. The new report summarizes the changes in tax policy that took place during 2011 legislative sessions that will affect revenue collections in FY 2012.
The “State Tax Update” shows sales taxes experienced the largest cuts, at what was projected to be more than $5.2 billion. This is primarily because of the expiration of temporary sales tax increases in California and North Carolina. States also cut corporate income taxes and miscellaneous taxes. Many of these reductions also were the result of allowing temporary tax increases to expire.
States as a whole raised taxes in all other categories. Removing the impact of these temporary taxes from the mix shows states enacted a net tax increase of $9 billion. But this figure can be misleading because large tax increases in only two states accounted for nearly all of the gains. Personal income taxes saw the largest expected net increase, nearly $2.5 billion. Assessments on health care providers recorded the second largest tax increase in the health care provider category, expected to generate in $1.9 billion in additional revenues.
NCSL’s new report, “State Tax Update” report includes extensive information on:
- Personal income taxes (net increase: $2.478 billion)
- Corporate and business taxes (net decrease: $807 million)
- Sales and use tax (net decrease: $5.245 billion)
- Health care provider and industry taxes (net increase: $1.956 billion)
- Tobacco, alcohol and motor fuel taxes ($88 million)
- Fees and other non-tax changes ($1 billion).
This NCSL report continues NCSL's long tradition of providing accurate, comprehensive and nonpartisan data on state finances. Credentialed members of the media can find a free full copy of NCSL's “State Tax Update” report on our website.
NCSL is a bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.