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Tax Increases Much-Regretted Necessity For Republican Governors

Tax Increases Much-Regretted Necessity For Republican Governors

By Mark Niquette, Bloomberg News (TNS)

WASHINGTON — Republican governors meeting in Washington this weekend said financial conditions in their states have deteriorated so much that they must raise taxes, even if it means crossing their own party.

In the face of a historical antipathy deepened by the Tea Party movement, chief executives in Alabama, Nevada and Michigan among other states are proposing increases this year to address shortfalls or to spend more on faltering schools and infrastructure. They advocate higher levies on businesses, tobacco, alcohol and gasoline, in some cases casting the increases as user fees.

The governors are at a crossroads. They are choosing between the path of Governor Sam Brownback in Kansas, who has refused to change course even after tax cuts provoked furious opposition, and that of Alabama’s Robert Bentley, who has said the state’s perennially precarious budget has reached the breaking point.

“I don’t want to raise taxes, but I also know that we need to pay our debts,” Bentley said in an interview. “We don’t have any choice.”

Governors in about ten states, many led by Republicans, are proposing increases this year, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers in Washington. Several plans involve raising fuel taxes to pay for crumbling roads and bridges, while Republicans including John Kasich in Ohio and Maine’s Paul LePage want higher sales or other levies to offset income-tax cuts. The burden of such taxes falls more heavily on the poor, who spend a larger proportion of their income.

In Nevada, two-term Republican Governor Brian Sandoval has proposed $1.1 billion in new or continued business, tobacco and other taxes to pay for education and initiatives such as expanding full-day kindergarten.

He said he has no choice with a shortfall caused by declining mining and gambling revenue, as well as a need to spend more on an education system that has the worst high-school graduation rate in the U.S.

His proposal has drawn opposition from Republican officials such as Treasurer Dan Schwartz, who said voters rejected two similar proposals in November and that Sandoval has “divorced” himself from state Republicans.

Sandoval said there are Republicans who support his plan, and that business leaders want better-educated workers.

“I knew going in that I was going to receive criticism,” Sandoval said in an interview. “That’s why it’s important for me to explain the ‘why,’ and the ‘why’ is to improve education in Nevada.”

Alabama’s Bentley, a two-term Republican, said he spent four years cutting spending, improving efficiency and making government smaller. Now, more revenue is needed to deliver services and deal with a long-building budget deficit of about $265 million that could reach $700 million by the fiscal year that begins in October.

Bentley said that while he’s still formulating his plan, it won’t involve gambling revenue and will include multiple taxes that the Republican-controlled legislature can approve.

Alabama has a history of opposing tax increases and rejected former Republican Governor Bob Riley’s $1.2 billion plan in 2003. Bentley said he expects backlash this time as well.

“But we’re going to do it with boldness, and this is something that we must do,” he said.

States are feeling pressure to pay for projects and services cut or delayed during the recession that ended in June 2009 and the sluggish recovery, said Michael Leachman, director of state fiscal research for the Center on Budget and Policy Priorities in Washington, which analyzes how fiscal decisions affect the poor.

“Governors of both political parties are faced with those neglected investments,” Leachman said.

The prospects for enacting the proposals are unclear, especially after Republicans extended control of legislatures to 31 states in last year’s elections and now have majorities in a record 69 of 99 chambers.

In Ohio, Republican lawmakers have said that while they welcome Kasich’s plan to cut income taxes, they oppose “tax shifting” to do it.

An exception may be efforts to raise fuel taxes to pay for infrastructure. The purchasing power of levies that haven’t increased in years has declined, roads and bridges are visibly deteriorating, federal funding is uncertain and the political climate may be more forgiving thanks to cheaper gasoline.

More than a dozen states, many with Republican governors, appear poised to increase transportation revenue this year, said Sean Slone, program manager for transportation policy at the Council of State Governments in Lexington, Kentucky.

Republican Governor Terry Branstad in Iowa said he’s not raising taxes. Rather, he’s backing a higher “user fee” to address a $215 million shortfall in annual transportation funding without borrowing, he said.

“I’m an anti-tax person as well,” Branstad said. “People who get the benefits of the roads should pay for it.”

Other Republicans at the National Governors Association meeting held the traditional ground that raising taxes shouldn’t be an option.

“This economy is in a delicate state, and the last thing it needs is higher taxes,” said Indiana Gov. Mike Pence, a potential presidential candidate in 2016.

The White House ambitions of Republican governors including Chris Christie in New Jersey and Scott Walker in Wisconsin may make raising taxes a gamble no matter what the state’s financial condition.

Christie has put a Democrat in charge of transportation spending and said he was open to all options for replenishing a road fund that has gone dry. He didn’t mention the crisis in a speech last week that railed against taxes.

Walker has ignored proposals from his transportation secretary to raise taxes and fees in favor of borrowing $1.3 billion. He also has said he will skip more than $100 million in debt payments to address a $283 million deficit after tax cuts.

In Kansas, Brownback is slowing his push to eliminate the income levy and calling for higher tobacco and liquor taxes because the state faces a $280 million shortfall after previous tax cuts produced greater revenue losses than anticipated. Still, he has said that the state will stay the course.

Connecticut Governor Dannel Malloy, a Democrat, raised taxes to help close a $3.6 billion deficit after taking office in January 2011 and was criticized by Christie and other Republicans for doing so.

Malloy said that while he chafed at the barbs, he’s not celebrating now that some Republicans are in position of having to raise levies.

“In a super-politicized environment — and certainly we have suffered in one of those during this post Great Recession period — some people thought it would never happen to them,” Malloy said in an interview. “They were wrong.”
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With assistance from Terrence Dopp in Washington.

Photo: Governor Beshear via Flickr

Nevada’s GOP Gov. Brian Sandoval Starts New Term With Tax-Hike Surprise

Nevada’s GOP Gov. Brian Sandoval Starts New Term With Tax-Hike Surprise

By Mark Z. Barabak, Los Angeles Times (TNS)

CARSON CITY, Nev. — If 2014 was a good year for Republicans nationally, in Nevada it was an election for the ages.

Gov. Brian Sandoval won his second term with an extravagant 70 percent support. Republicans not only seized control of the Legislature — giving them full run of the Capitol for the first time since 1929 — but also staged an unprecedented sweep of statewide offices.

Sandoval then did something uncharacteristic for a Republican, especially one in a state with such a deep and abiding hostility toward government: He called for the largest tax increase in Nevada history.

And he did so after nearly 80 percent of voters in November rejected a tax hike that, while differing in size and scope, was touted as addressing the same problem Sandoval hopes to remedy with his plan: the state’s woeful public education system.

“I know this will cause debate,” Sandoval said after springing his plan in last month’s State of the State address.

Indeed it has, along with a revolt by anti-tax Republicans, rumblings of a legislative recall and a man-bites-dog display of Democrats hailing the GOP governor and his brave leadership.

“The governor loves this state,” said Marilyn Kirkpatrick, the Democratic leader in the Nevada Assembly. “And he has a vision of what it needs to look like moving forward.”

Apart from turning Nevada politics upside down, Sandoval has launched a frontal assault against the Tea Party — perhaps the boldest in the country — in a state where the movement’s minimal-government philosophy has one of its strongest followings.

The showdown promises no small amount of political drama. The Legislature has yet to convene and already there have been intrigues surrounding a GOP speaker shoved aside for racially insensitive and homophobic comments and a lawmaker booted from the Republican leadership over personal tax troubles.

The latter, Assemblywoman Michele Fiore, has emerged as one of the fiercest opponents of the governor, rounding up votes to kill his tax plan even before the Legislature opens for business Monday.

(In a separate headache, the state’s new Republican attorney general, Adam Laxalt, last week joined a multi-state lawsuit seeking to overturn President Barack Obama’s order blocking deportation of millions of people in the country illegally. Sandoval, who was blindsided by Laxalt’s move, said the matter should be worked out by Congress and the president, not the courts.)

To a large extent, the governor is a victim of his own political success.

He was so popular he scared off serious competition in November, giving Democrats little incentive to turn out. The result was a GOP wave of such magnitude it surprised even Republican strategists; no one expected the party to win control of the state Assembly, where Democrats held a near two-thirds majority, but they did.

Among the GOP newcomers are a number of deeply conservative candidates with scant political experience and, notwithstanding Sandoval’s place atop the ticket, no allegiance to the governor. Many seem likely to vote against his tax plan.

Sandoval’s $1.1-billion proposal would replace the state’s $200 business license fee with a levy based on annual revenue and industry type. The tax on cigarettes would increase, and a 2009 tax hike that was supposed to end in June 2013 but was extended would become permanent.

The added revenue over two years would pay for a sizable investment in the state’s public schools — among the worst-performing in the nation — including an expansion of full-day kindergarten, more money for English-language learning and special programs to benefit gifted students.

Delivering his State of the State address, Sandoval crowed about Nevada’s comeback from the Great Recession, which hit harder here than just about anywhere else. He touted renewed job and population growth and the state’s attraction of new business, including a huge factory to make batteries for Tesla’s electric cars, which Nevada won amid stiff competition with California and other states.

But Sandoval said the prosperity would continue only if the state modernized its economy, ending its overreliance on up-and-down revenue from gambling and tourism, and thoroughly overhauled its schools and outmoded tax system.

“We must decide if [the state’s next] chapter is about getting through the next two years” of the legislative session “or about creating a new Nevada for the generations to come,” Sandoval said.

To critics, the tax plan sounded suspiciously like a ballot measure that voters overwhelmingly rejected in November. That proposal, pushed by organized labor, would have imposed a 2 percent tax on any business generating more than $1 million in annual revenue, with the proceeds going to the state’s schools.

“We saw voters basically say ‘no’ to the idea that we can simply raise taxes and spend our way to greater education performance,” said Andy Matthews, president of the Nevada Policy Research Institute, a libertarian-oriented think tank. “In the aftermath of that loud rebuke … the governor has basically proposed something that looks a lot like what got shot down.”

But supporters point to key differences in Sandoval’s plan, which they say makes it simpler and fairer than the measure voters rejected.

The governor, along with business leaders and prominent lawmakers in both parties, opposed the November ballot measure. But if one listened closely — Sandoval barely campaigned for re-election — there were hints of his far-reaching plans.

Meeting in late October with the editorial board of the Reno Gazette-Journal, Sandoval vowed to fix the state’s troubled education system and change the way the state’s penny-pinching government funds itself. Asked if that meant new taxes, he replied, “You’ll find out.”

While the backlash from Republican quarters has been fierce, Sandoval is viewed as politically unassailable. So critics have launched an effort to recall three of the GOP lawmakers who have refused to publicly oppose the governor’s tax plan.

One of them is Assembly Speaker-designate John Hambrick, who was hastily chosen to replace Ira Hansen, a Tea Party favorite, after newspaper columns and past comments surfaced in which Hansen, among other things, compared homosexuality to bestiality and wrote that African Americans were insufficiently grateful to whites for ending slavery.

Sandoval helped push Hansen from the speakership, and that too has rubbed feelings raw. Hansen claimed he was ousted over his anti-tax beliefs.

Republican Assemblyman Jim Wheeler, whose job includes rounding up votes for the GOP leadership, said the governor was owed a respectful hearing of his tax and education proposals — but no more.

“We have three branches of government … that’s what the checks and balances of this country and this state are all about,” Wheeler said, after doffing his cowboy hat and settling in an office decorated with a lasso, among other western regalia.

He was undecided on Sandoval’s tax plan, Wheeler said, but appeared to have his doubts. Any law that passes, however well-intended, is an infringement on personal freedom, Wheeler said.

“This is the freest state in the freest country on earth,” he said. “And we plan to keep it that way.”

Photo: Curtis Gregory Perry via Flickr

The Tax Hikes That Republicans Love

From the Tea Parties to the corporate boardrooms to the presidential debate platforms, we hear a familiar droning whine about taxes — except the angry message is no longer simply that taxes are too high. Today, conservative politicians and pundits complain instead that some people, namely those too poor to owe federal income taxes, aren’t paying enough. So what if those people can scarcely sustain their families, like the millions of middle-class families doing slightly better but struggling as well?

This is the Democratic “fairness” argument turned upside down, which may prove to have limited appeal. What will appeal to most Americans even less are the proposed Republican solutions, like a national sales tax. And what might surprise them is that the first president to expand tax relief for the working poor was that almighty Republican icon, Ronald Reagan, whose name is constantly invoked by politicians unworthy of his legacy.

However piously they cite the Gipper as their idol, the Republican candidates for president seem united in their desire to repeal the Earned Income Tax Credit, which he justly praised in 1986 as “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” Now Republican politicians increasingly reject the earned income credit as an immoral form of “welfare,” because its provisions have helped to insure that roughly 47 percent of Americans pay no federal income tax, with the poorest receiving a modest rebate instead. That statistic has been distorted all too often into the false assertion, usually uttered on Fox News Channel or right-wing talk radio, that the poorer half of the nation’s population “pays no taxes.”

Of course the working poor pay lots of taxes. In fact they tend to pay more as a share of their income than the very rich, plenty of whom do not work at all. The poor pay state and local income tax as well as sales taxes, gas taxes, and utility taxes, but above all they pay Social Security and Medicare taxes on the very first dollar of income they earn (and on every dollar up to the $106,000 ceiling that shelters the income of higher earners). To suggest that the working poor receive government benefits without paying anything is a brazen lie.

Aside from the earned income credit, there is another very basic reason why the working poor don’t pay income taxes. After decades of falling wages and rising inequality, they literally cannot afford it. As the noted economics reporter David Cay Johnston explained last April 15, the average annual income among the bottom half of American taxpayers was around $15,000. With the first $9350 exempt from federal income tax for single people, a figure that rises to $18,700 for married couples, millions of households don’t earn enough to owe anything to the IRS. At the same time, Johnston pointed out that many of the wealthiest families in the country also pay no taxes thanks to loopholes such as the “carried interest” provision, which Republicans fight ferociously to preserve against “socialist” demands that bankers and investors pay the same rate as their secretaries and janitors.

Although polls show that most Americans — including most Republican voters — strongly favor raising rates on the wealthiest taxpayers, the GOP leadership is sworn to prevent any such reform. Rather than close the grossest loopholes and deductions exploited by billionaires, Republican politicians want to punish all those families living large on $300 a week (and their children) by taxing them more. One way to do that, favored by House Budget Chairman Paul Ryan (R-WI) and presidential candidate Herman Cain, among others, is to impose a national sales tax or value-added tax. The result, as any tax expert could explain, would shift the national tax burden even further from the wealthy to the working poor and middle class. It is their form of class warfare. And unless the rates were much higher than proposed in Cain’s “9-9-9” plan or Ryan’s original budget, a sales tax would increase deficits and debt instead of reducing them.

Why millionaires like Ryan and Cain favor such schemes is obvious enough. What is far less obvious is why they can still pretend that they revere Reagan — or that they want to cut taxes for anybody except themselves.