Hard Time For States- Don’t Believe It!

Recent news reports around the country seem to be telling a similar tale of hard time. States like Pennsylvania, Missouri, Massachusetts and California are all reporting significantly higher than expected tax collections in April despite what several tax lawyers and many economists believe remains a struggling economy with some of the worst unemployment numbers in memory.

In Pennsylvania, the State’s Revenue Department is reporting a $506 million dollar surplus (six times the surplus Governor Corbett had projected). Even though the State was prepared to make $2.6 billion in spending cuts, now the unexpected money is likely to head-off many of those cuts.

Missouri’s tax revenues are reportedly up 3.4 percent as compared to the same time last year. The unexpected money is likely to be used to dodge anticipated spending cuts. The State’s Office of Administration reported that collections of individual and corporate income taxes were both up. Coincidently, tax attorneys have noted that tax refunds were up 1.5% over last year as well.

In Massachusetts, the State saw a 43% increase in revenue translating to about $758 million dollar increase as compared to April of 2010. The added revenue surpassed budget benchmarks by $587 million dollars. Again the extra money is expected to help the State avoid making “tough” spending cuts.

And, the State of California reports its revenues are up more than $2.3 billion dollars over projections made just this past January. Needless to say, politicians already have the extra money spent and intend to use it to avoid making deep spending cuts.

So why is it that every one of these States enjoying an unexpected windfall in tax revenues has chosen to use the extra money to prevent spending cuts? Did they even stop to consider going forward with the planned cuts and saving the money for a rainy day (or the political blasphemy of giving it back to the taxpayers)? The answer seems simple; politicians are only powerful when government spends money and grows. When there are spending cuts, those most affected by the cuts start looking for support elsewhere from another politician who will pander to their needs.

Some tax lawyers and several government watch-dog groups says additional revenues are not needed and spending cuts should be used to reduce the size of government. They argue that tax increases only encourage more spending and they cite economists and financial experts who assert tax increases harm economic performance and undermine competition. These same tax attorneys point out that increasing taxes also has a tendency of promoting social discord (i.e. the Tea Party movement) and encourages more loopholes thereby making the tax system itself unfair and too complicated.

Ultimately the only place taxpayers may be able to stop this unchecked cycle of spending and growth is in the ballot box.

 

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