Red states mull higher taxes

Legislators in some of the nation’s most conservative states are considering new ways to boost revenue — including tax increases — after years of deep cuts and a global commodity bust that has robbed them of billions of anticipated dollars.

With legislators returning to capitals across the country this week, key budget negotiators are considering a range of ways to boost revenue, including higher gas taxes, sales tax on internet purchases, new fees and even lotteries.

The debates come as the incoming Trump administration and Republicans in Congress craft proposals for federal tax reform.

{mosads}It is a reversal, in many ways, of recent trends toward deep tax cuts, led by states like Kansas, where Gov. Sam Brownback (R) and the Republican-dominated legislature slashed rates on individuals and businesses in hopes of spurring economic growth. Kansas now faces a $350 million budget hole this year, and a likely $600 million gap next year.

This year, a coalition of centrist Republicans and Democrats are plotting new tax hikes to plug those holes. The legislature is likely to roll back a tax cut on small businesses Brownback signed in 2012, while also raising gas taxes.

Other states have taken notice of Kansas’s budget woes, effectively putting the brakes on some efforts to adopt similar tax cuts.

At least eight other states, including Tennessee, Arizona and Missouri, are considering raising gas taxes specifically aimed at paying for transportation and infrastructure projects. As vehicles become more fuel efficient, gas taxes have produced less revenue, squeezing state budgets. 

Gas taxes “haven’t been raised in a long time, and they haven’t been adjusted for inflation,” said Michael Leachman, director of state fiscal research for the center-left Center on Budget and Policy Priorities. “The politics around gas taxes are such that you get business interest in the kinds of transportation projects that help them get their products to market.” 

In Oklahoma, legislators must come up with enough revenue to close a $1.4 billion budget shortfall, caused in part by plunging oil and gas prices. Gov. Mary Fallin (R) has reversed her earlier opposition to raising the gas tax. She has also floated the possibility of raising taxes on tobacco, and of broadening the sales tax base to include some services.

In Mississippi, gas taxes have been part of negotiations between Lt. Gov. Tate Reeves (R) and state House Speaker Philip Gunn (R), who are working on a comprehensive tax reform package. Reeves and Gunn have said they are also considering taxing internet sales, if Congress allows states to do so, and creating a lottery.

In Indiana, where Vice President-elect Mike Pence (R) made tax cuts a priority during his term as governor, his successor, Gov.-elect Eric Holcomb (R), has also proposed raising the gas tax and adding some new vehicle fees.

Nebraska legislators are debating a deeper shift in the state’s tax code. One faction in the ostensibly nonpartisan unicameral legislature wants to reduce income taxes while raising sales taxes. Another wants to shift emphasis from property taxes to sales taxes. Gov. Pete Ricketts (R) has said he would like to cut both property and income taxes, though the state faces a $900 million shortfall.

States like Nevada and Oregon are considering gross receipts taxes, which are levied on products along the chain of production, said Scott Drenkard, director of state projects at the nonpartisan Tax Foundation. Other states are considering raising sin taxes, on alcohol or cigarettes.

“We’ve seen more states go back to the trough on that one,” Drenkard said.

Anti-tax advocates say they are gearing up for fights in a number of states this year, and that tax cuts at the federal level will allow economic growth in the states.

“States have been spending too much money,” said Grover Norquist, head of Americans for Tax Reform. Debates over raising new taxes, he said, are “a function of which states are keeping their spending under control.”

In states where Republicans have only just assumed total control, and where budgets are in better shape, legislators are considering restructuring or cutting taxes. In New Hampshire and Iowa, states now wholly run by Republican governors and legislatures, leaders say they will work to reform the tax code by condensing the number of individual tax brackets or by cutting corporate tax rates.

“We could be much more competitive in the tax world,” said Linda Upmeyer, the Iowa House speaker.

Other states are waiting to see how tax receipts come in this year, both because of Congress’s push to overhaul the federal code and because earlier cuts are still taking effect. Many states have passed tax cuts that will be triggered only if revenue targets are met.

“States are increasingly relying on phase-down efforts or revenue triggers so that cuts happen automatically in a slow and steady way, or in a revenue-contingent slow and steady way,” Drenkard said.