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Wealthy Could End Up Footing The Bill For States’ Budget Shortfalls

Wealthy

As U.S. states brace for massive revenue shortfalls due to the pandemic, several are looking for ways to curb the budget deficits, including increasing taxes for the wealthy.

The majority of states are now holding their first full legislative sessions since the pandemic started and the very first issue to deal with is balancing the budget for this fiscal year and writing next year’s budget.

State revenue collections across the country plummeted as commerce slowed down to curb the spread of COVID-19. Even though some expected shortfalls as high as 20%, state revenues fell 1.6% in fiscal year 2020 and were 3.4% lower than projected before the pandemic 

According to some analysts, estimates are that state and local revenue losses will total about $300 billion through fiscal year 2022.

In full panic mode, some governors are proposing various budget-cutting and revenue-increasing measures, while they await federal aid.

The Biden Administration’s $1.9 trillion relief plan, the “American Rescue Plan”, would send hundreds of billions of dollars to state and local governments. The deadline for the final passage of the rescue plan is mid-March. 

According to an estimate from Moody’s Analytics, even with federal aid, states are still facing $56 billion in spending cuts or revenue increases to balance their budgets. 

In Arizona, authorities have already enacted a 3.5% surcharge on earnings above $250,000 for individuals and $500,000 for married couples filing jointly to raise revenue for public schools and other educational institutions. 

In Connecticut, authorities have proposed raising the income tax rate to 8.8% on individuals with a yearly income of over $500,000 and 12.6% on individuals that earn over $1 million a year. 

Connecticut’s proposal is modeled on New Jersey’s “millionaire’s tax”, which imposes a 10.75% tax rate on those earning more than $1 million per year.

In order to fill in a projected $1.28-billion gap in the next two-year budget, Minnesota governor Tim Walz has proposed a new state income tax bracket for couples earning $1,000,000 a year. Still, only 21,000 households would have an average tax increase of $8,072 per return under this proposal. Governor Walz has also proposed 4% tax hikes on capital gains and corporations. 

Pennsylvania Governor Tom Wolf proposed an income tax increase from 3.07%, to 4.49%. However, he said only the top one-third of earners would pay more.

Still, the proposed tax increases, if they get approved, will be enacted at different times in different states.

Opponents of the wealth taxes, particularly in New York, say the plan could backfire and drive away wealthy people who already contribute significant amounts to the state’s tax coffers. Other states with lower taxes could be the direct beneficiaries, with the move potentially leading to a change in demographics. 

By Fred Dunkley for Safehaven.com

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