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1992 State Fiscal Prospects

1 min readBy: Gregory S. Leong, Paul G. Merski

Download Special Report No. 3

Special Report No. 3

Executive Summary A new TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation survey of the 50 states reveals that nearly half will wrestle with record deficits in fiscal year 1992 and plan to combat them with new and higher taxes. Of the $11.1 billion in new taxes proposed, five states account for 68 percent of the revenue: California, Connecticut, New York, Pennsylvania and Texas. Each of these five states face an FY ’92 deficit well over one billion dollars. The largest is projected in California —$12.6 billion. New York is $7 .6 billion short, while Pennsylvania and Connecticut will face shortfalls estimated over $2.5 billion. Texas faces a $4.5 billion deficit for its 1991-93 biennial budget.

The nationwide recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. has made a mockery of state revenue estimates. In particular, low corporate profits and weak personal consumption expenditures have stunted corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. revenues. While some states plan to limp by with measures such as accelerating tax collections, increasing fees, eliminating tax credits and extending temporary tax hikes, the magnitude of anticipated budget shortfalls has caused many to tap the big three state revenue sources — sales, individual and corporate income taxes. Last year’s federal in creases on gasoline, alcohol, and cigarettes have reduced states’ willingness to raise more of their own tax revenue from those sources.