Sunday, January 03, 2010

Thoughts on a State Income Tax

The legislature isn't even is session yet, and the talk of implementing a State Income Tax is already beginning to dominate the discussion of how to close the budget shortfall the legislature has spent us into.

The problem as I see it, is even if we eliminate some taxes — like the hated B&O tax for example — as a trade off to institute an income tax, once the economy improves, the legislature can't be trusted not to spend us right back into the very same position it now finds itself. Once that inevitably happens, they won't even hesitate to bring those old taxes back. The result will be an even more regressive tax system than we are already saddled with.

And when you start analyzing the numbers, you find that income tax revenues for states that currently have income taxes, as well as the federal government, dropped more than our state's revenues this past year. The bottom line is, we would face even bigger budget shortfalls with a state income tax, which bolsters the argument that many of the old taxes would be brought back, only in new, and undoubtedly more expensive, configurations.

What this state really needs as part of a long-term solution, is a total overhaul of its regulatory and tax systems to eliminate conflicting regulations — especially those overseen by environmental agencies — and implement a fair and equitable tax system.

For example, it is not at all unusual for DOE, Fish and Wildlife and DNR to squabble over the regulations governing any given project — to the financial detriment of the project proponent — taking months, and in some case years, to come to a compromise outcome. Meanwhile, we taxpayers are paying for this insanity. Why not make the regulations clear and easy to understand with one agency overseeing all environmental protections? State employees could be eliminated and regulatory process, which costs us taxpayers significant sums, could be short and certain. Projects could be completed in much shorter time frames and begin generating sales tax revenue much quicker. This same formula could be applied to other departments — such as transportation.

The impediments I see to such a proposal are a myriad of special interest groups, as well as state employee unions — which already have way too much control over our current spending requirements. State employee unions for example have steadfastly refused to postpone over $83 million in “step” or longevity-pay increases for almost a third of state workers typically in their first six years on the job. State workers earn about a third more than private sector workers in comparable jobs. In my view, the powerful state employee unions — which routinely fill the election coffers of legislators who are beholden to their interests — are a large part of the problem — while refusing to be any part of the solution.

1 comment:

  1. Anonymous8:48 AM

    Lary, you are right on the money. California has every tax in the book and they are essentially broke because their legislature consistently outspends real, if not projected, revenue.

    The establishment of an income tax in our state won't fix anything in the long term, but it will provide a mainline fix of political opiates to Olympia. The current administration doesn't want to eliminate any state employees, they want to hire more.

    It's politics, Chicago style.