Covering the Front and Back Pages of the Newspaper
May 4, 2007
POLITICS: You Get What You Vote For (And You Pay For It Too)
The 2006 elections brought us eight new Democratic governors, plus the re-election of 11 Democratic incumbents. Nobody should be surprised, however, to see that several of those governors are reaching for Democrats' favorite cure for all ills: higher taxes. Let's take a look at some of the Democratic governors who think taxes just aren't high enough, as well as a few who have learned their lesson (and one Republican who hasn't):
The Main Offenders:
Illinois: Rod Blagojevich
Following his re-election, Gov. Blagojevich proposed the largest tax increase in Illinois history, "a tax on businesses at every step in providing services or products," carrying an estimated $7.6 billion price tag and supporting a plan "to boost spending on health insurance, schools and pensions," a plan that has drawn stiff bipartisan opposition in the state House and even led Chicago's Democratic Mayor to blast Blagojevich for jacking up taxes and using anti-business rhetoric.
Michigan: Jennifer Granholm
Michigan voters knew, with the state's economy badly lagging behind the nation as a whole, that they were voting for more of the same by re-electing Gov. Granholm. But apparently deciding that the business climate wasn't bad enough, she is proposing $1.5 billion in new taxes, and threatening cuts to essential services to get the state legislature to play along. "Granholm favors a 2-cent service tax that would tax everything from haircuts to car washes. An across-the-board sales tax increase is also an option," and she insists that a hike in income taxes is the only other alternative. Michigan retailers are crying foul.
Pennsylvania: Ed Rendell
Affable big-city machine politicians like Rendell, handily re-elected after a challenge by Lynn Swann, become a lot less likeable once the tab comes due. Rendell proposed upping the sales tax from 6 to 7 percent, which would put Pennsylvania second only to California in sales taxes, and continue a sharp upward trend in the state's tax burden. Two thirds of the hike was earmarked for new spending, with a third offsetting planned property tax cuts:
About 40 percent of the $1.246 billion in new revenue would go toward expanding the $1 billion a year in property-tax reductions that slot-machine gambling is eventually expected to generate; the rest would be used to finance other state programs.
That proposal looks dead now due to opposition in the legislature, though legislators are split on whether to support other tax increases or to support the hike if the whole thing is earmarked for property tax cuts. Rendell had also proposed other tax increases:
Rendell's $27.3 billion budget includes proposals for . . . increasing waste-disposal fees from $6.25 per ton to $9 per ton to help the state's hazardous site cleanup fund and establishing a new electricity usage tax of $0.0005 on kilowatts of energy used per hour to help fund an energy independence program. It also proposes taxing oil companies 6.17 percent on their total profits and taxing businesses that do not provide health insurance to their employees 3 percent of their annual payroll to fund state health care.
All of this is intended to pay for "a 3.6 percent or $948-million increase in spending growth."
Colorado: Bill Ritter
While he stumbled in recent years, Colorado's former GOP Governor Bill Owens was rightly lionized for the hard line on taxes and spending that had earned him a National Review cover calling him "America's Best Governor". Central to that effort was the 1992 Taxpayer Bill of Rights (TABOR), which restricts the ability of Colorado state government to raise taxes.
So of course, Owens' Democratic successor, Bill Ritter, is looking for ways around TABOR, setting up a possible constitutional crisis in Colorado. The proposal Ritter supports - and which passed the state Senate on a largely party-line vote - would strip away built-in protections against property tax hikes driven by increased property values:
Under current law, mill levies, which are used to calculate property taxes, ratchet down as property values rise, because of an interaction between the 1994 School Finance Act and various constitutional provisions, including TABOR.
Call it what you will, but a bill to cause taxes to go up 29.8% when they otherwise would not certainly sounds like a tax hike to me. And it will to Colorado homeowners, too.
Massachusetts: Deval Patrick
Deval Patrick reclaimed the "Taxachusetts" governors' mansion for the Democrats for the first time since Michael Dukakis, and what's on his menu? First, closing "loopholes" to increase business taxes by some $500 million, though he is proposing a commission to nail down the specifics:
The Patrick administration proposes seven changes to corporate tax codes that would:
Patrick's administration "explains that these are not anti-business but a matter of fairness and shared responsibility." He also wants to open up new avenues of local taxation (a plan opposed by the state Senate's leading Republican):
Patrick's plan would allow communities to raise meals taxes from 5 percent to up to 7 percent; lodging taxes could be raised from 9.7 percent and 12.45 percent (for Boston, Cambridge and Springfield) to 10.7 percent and 13.5 percent. Patrick has proposed a separate idea allowing communities to tax telecom companies' properties.
Maine: John Baldacci
Baldacci, re-elected in 2006, wants to raise $131 million with a $1-a-pack hike in the cigarette tax (don't you love when Democrats propose regressive taxes on a product people are addicted to? At least it's a concession that this is one activity that won't go away if you tax it, though it can be evaded if you can drive to another state.) Some fellow Democrats disagree and think the alcohol tax should be raised instead, or want to "put more of the tax burden on visitors to the state." Republicans have been opposing any new taxes, while Democrats play chicken with business taxes:
Sen. Karl Turner, R-Cumberland, a member of the Appropriations Committee, said Republicans on the panel have worked out a list of proposed cuts to bring the budget into balance without raising taxes.
Wisconsin: Jim Doyle
The purplest state in the nation in the 2004 election re-elected Democrat Jim Doyle last year, campaigning on a platform of (among other things) not raising taxes, while the state legislature is split. Now, the bill is coming due, with perhaps as much as $1.75 billion in new taxes. As one state Republican explained:
Suder got down to the brass tacks of Doyle's proposal, $7.6 billion in new spending and borrowing over the biennial period.
[The budget includes] a tax on small business owners who file quarterly business forms by mail . . . and taxes on music downloads, e-mail greeting cards and soda purchases.
Republicans have opposed those new taxes. Doyle wants a staggering $1.25 per pack increase in the cigarette tax. And he proposes a 2.5% gasoline tax that is bound to be passed on to consumers one way or another:
A tax on oil companies proposed by Gov. Jim Doyle could be passed through to consumers at the gas pump, according to an analysis by state tax officials cited in a conservative group's new report.
Oregon: Ted Kulongoski
Oregon has a $1 billion budget surplus, so what does the state's newly re-elected Democrat governor, Ted Kulongoski, want to do? Raise what some estimate as up to $1.6 billion in new taxes. To pay for a vast new healthcare spending plan, he proposed an 84.5 cent hike in, yes, the cigarette tax. But while Democrats control both houses of the state legislature, tax increases require more votes than the Democrats have, and so the cigarette tax hike bit the dust when only one Republican joined all 31 Democrats in the state House in supporting it.
New Hampshire: John Lynch
New Hampshirites may have a longstanding reputation for their flinty opposition to taxes and spending, but with Democrats controlling the legislature for the first time in over 80 years, Democratic Gov. John Lynch, re-elected in 2006, apparently doesn't share that view. Lynch proposed what some called an increase of 15-17% in state spending, and the state House passed a budget that raised spending 11% (compared to a Lynch proposal decribed as a 9% hike), plus tax hikes:
[L]awmakers approved two new tax increases: a 45-cent increase in the cigarette tax, to $1.25 a pack, and a 4 percent increase in the real estate transfer tax, raising the rate for home buyers and sellers from $7.50 to $7.80 each per $1,000 of home value. The House also voted to raise the state portion of the vehicle registration fee by $6.
On the tax side, "Lynch had proposed a 28-cent cigarette tax hike and a larger fee hike on registering large trucks." Republicans have denounced the tax hikes, and only two Republicans voted for the new budget.
Tennessee: Phil Bredesen
Gov. Bredesen rightly won plaudits in his first term for his centrism (he has resisted calls for a state income tax), and times are rich in Tennessee; the governor admitted in a recent address to the General Assembly that "I have never had a year with as much new money as we have before us now." Yet, he is standing by his request to triple the cigarette tax to pay for education spending, a 40-cent-a-pack hike that has drawn stiff opposition from Republicans who say taxes should not need to be increased in good economic times.
The Mixed Bags:
Iowa: Chet Culver
Iowa Democrats in the legislature proposed 20% increases to the state sales and use taxes. Iowa's new Democratic governor, to his credit, opposed the plan, which bit the dust, but ended up signing a $127 million increase in cigarette taxes to pay for new spending:
[One Iowa Republican] said a record wage and benefits increase of $1.8 million to state employees was too much, while Seymour criticized that 625 new state jobs will be created in the year beginning July 1. . . .
New Mexico: Bill Richardson
There are any number of reasons to be alarmed by the thought of Bill Richardson as the Commander-in-Chief, but give the man his due: on taxes, he's as good as a Democrat with national aspirations is likely to get, compiling at worst a checkered record on taxes. He came into office in 2003 promising supply side tax cuts in income and capital gains taxes. After signing an income tax cut that slashed rates from 8.2% to 4.9% over five years, though, he backslid in raising other taxes and fees over the following years, including "tax increases on everything from cigarettes to fuel and a complicated, Dickensian, and later repealed surcharge on nursing home beds--all totaling a net tax increase of roughly $174 million through fiscal year 2006, according to the conservative Americans for Tax Reform." This year, he championed a popularly enacted $49 million sales tax hike to fund the construction of a Virgin Galactic spaceport in southern New Mexico.
New York: Eliot Spitzer
Eliot Spitzer surprised a lot of people when he promised on the campaign trail not to raise taxes after 12 years of Republican management in Albany. His record on the job has been more mixed, though not as bad as some of his Democratic cohorts. In March, Spitzer drew criticism from Mayor Bloomberg for a proposal to raise some $2 billion in taxes on banks (a crucial industry in New York City) through the closing of "loopholes," once again to finance a big-spending budget. The final budget backtracked significantly on those tax hike proposals, and contained a mixed bag for business taxes:
The budget does reduce the corporate tax rate from 7.5 percent to 7.1 percent and cuts the tax on manufacturing income to 6.5 percent from 7.5 percent. It also reduces the corporate alternative minimum tax from 2.5 percent to 1.5 percent. The moves will help save New York companies $150 million, according to the governor's office. Other changes, however, will close what Spitzer has described as "loopholes" that allowed companies to shield income from state taxes. The changes will generate about $450 million in new revenue for the state. That means a net tax increase for businesses, Duerr says.
Spitzer is not done hunting for new sources of revenue, including squeezing stores owned by Native Americans in upstate New York to pay more in sales taxes. Spitzer has proposed property tax relief but is opposing a GOP plan to increase tax rebates for senior citizens.
Maryland: Martin O'Malley
Filling Bob Ehrlich's shoes in Maryland isn't easy, and newly elected Governor Martin O'Malley has tried to avoid pulling the trigger on new tax hikes even against the weight of Maryland's left-wing state legislature, opposing a hike in property taxes from 11.2 to 12 cents. But it ain't over yet:
"In the months ahead, I think we need to look at our entire tax structure and make it more modern, inclusive and fair," O'Malley (D) said...The state is required to set the residential tax rate by May 1.
O'Malley has, in fact, drawn criticism for moving slowly in general (some calling him "O'Molasses"); the jury is still out on whether he will follow the lead of his tax-hiking brethren.
Kansas: Kathleen Sebelius
Kansas, as you would expect, has Republican majorities in both houses of the state legislature, and has formed a bipartisan consensus (including Governor Sebelius) around low taxes:
On the topic of taxes, it was again a good year to be a business lobbyist in Topeka. The Legislature helped business with an estimated $135 million tax reduction over the next five years with the phase-out of the franchise tax, and an unemployment tax reduction worth $176 million.
Still, Republicans are worried that overspending will erode this policy in the future. And Gov. Sebelius, re-elected in 2006, has announced that she will continue her years-long push for a 50 cent hike in the cigarette tax to pay for new health care spending.
Arizona: Janet Napolitano
After major tax cuts she signed in 2006, albeit after negotiating down Republican proposals for larger cuts, newly rele-ected incumbent Napolitano urged a go-slow approach on Republican legislators looking for further cuts in 2007:
Gov. Janet Napolitano, a Democrat, has argued that the state should measure the impact of those cuts before enacting more, but she has not commented recently about where tax cuts figure into budget negotiations.
More recently, the Republican state House passed $62 million in new tax cuts, but Napolitano has endorsed a bipartisan Senate bill that does not include them. In general, Napolitano has acceded to the reality of Arizona's anti-tax mood.
The Good Guys
Not every Democrat is on the wrong side of the tax issue. Here are some who have learned to buck their party's orthodoxy on taxes:
Arkansas: Mike Beebe
Mike Huckabee's successor is off to a good start on taxes, signing into law some $200 million in tax cuts ranging from sales and property taxes to income taxes on low income earners and taxes on manufacturers' energy use.
Oklahoma: Brad Henry
Oklahoma has the nation's lowest tax burden, something the recently re-elected Gov. Henry applauds, and has previously enacted tax cuts still to come online. While Gov. Henry recently vetoed a budget bill passed by the legislature (which is divided among the two parties), tax hikes were not on anyone's radar and further cuts remain possible.
Ohio: Ted Strickland
Losing their way on taxes was a big part of the Ohio GOP's dramatic downfall in 2006, and especially with the GOP still holding the legislature, that lesson has not been lost on new Democratic Governor Ted Strickland. Strickland's new budget won unanimous support in the Ohio House, thanks in no small part to a popular increased property tax exemption for senior citizens, paid for with windfall money from the 1998 tobacco settlement. Strickland is also considering tax breaks for companies that are losing money, although one can debate whether that is really spending disguised as a tax break.
Jodi Rell of Connecticut
Finally, I should add here that at least one newly elected Republican governor has been every bit as bad as any Democrat. Jodi Rell of Connecticut got re-elected in a landslide largely by avoiding the Republican label, but now she runs a serious risk of destroying the GOP's low-tax brand in her state for a generation by proposing a massive 10% increase in the state income tax, while state "Democrats' proposal would raise even more money but would also cut taxes for the middle class . . . [and] increase state spending by 10.4 percent and increase taxes by $1.6 billion" by hiking the top tax rate by 40%. A hardy band of Republicans in the state legislature has proposed a "No Tax Increase Budget" that includes no tax hikes, but with 2-to-1 Democratic majorities in both houses, don't expect much. Connecticut voters have been stuck with an echo, not a choice.