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At the worst time: States want to raise taxes as economy implodes

According to the Wall Street Journal (subscription required), "At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multi-billion-dollar tax increases that went into effect earlier this year."

Declining incomes and job losses combined with the usual fiscal mismanagement are leading to massive budget problems for numerous states, making tax increases one of the few remedies available for shrinking deficits. Sales tax revenues have tanked along with consumer spending, but increasing taxes is a good way to slash consumer spending more -- and drive up job losses.

Of course these tax increases couldn't come at a worse time for consumers: Lose your job and take a lower paying replacement while your home declines in value and your 401(k) tanks: And then have the government tell you that "your fair share" has increased.

Some home owners are looking for relief in property

taxes, where falling home values have led to lower assessed values and therefore lower taxes. But that's likely to be a short-term phenomenon: If all of the homes in an area have fallen in value by 40%, the town can do one of two things: Find some way to cut spending dramatically or simply increase the property tax rate by 40% to compensate for falling home values. Since lower home values have nothing to do with how much it costs for a town to provide basic services, many places will probably have no choice but to raise tax rates so that property tax bills are the same on a house currently valued at $100,000 as they were when the house was worth $150,000.

It's tempting to talk about the need for cutbacks in government waste, but it seems unlikely that there's enough fat that can be trimmed fast enough to avoid raising taxes.


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