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Broaden Sales Taxes to Include Services

PA: Gov. Rendell Wants Gas Tax Hike

HARRISBURG -- A gasoline tax increase of 3.25 cents per gallon could help the state collect some of the $472 million a year it needs for transportation projects, Gov. Ed Rendell said Monday.

That's part of his back-up plan if lawmakers won't agree to higher taxes for oil companies.

The revenue is needed to fund road improvements, bridge replacements and mass-transit projects, the governor said.

Maine Voters Reject Tax Reform Initiative, but Approve Infrastructure Investment

This past Tuesday, Maine votersconsidered legislation which would have reformed the state's tax structure and bond measures that will bolster infrastructure investment.By a large margin, Mainers rejected a law passed last June, LD1495, to lower the top income tax rate from 8.5 percent to 6.5 percent for state residents earning less than $250,000 annually by broadening the sales tax to include different services and shifting tax burden to nonresidents by increasing the meals and lodging tax from 7 to 8.5 percent.

State Revenue Increases Across the Nation Continue to Ease Pain of Downturn

As this Dispatch will detail, these votes mirror actions taking place in both conservative and progressive states and localities around the country.  In 2009 and 2010, states have enacted a wide-ranging set of revenue increases to cope with cumulative 2010 and 2011 deficits of approximately $375 billion.  Although revenue forecasts are improving, states are still reeling from historic declines in the past year.

What is remarkable is that the anti-tax movement has wracked up such regular failures in the crisis, as even many state leaders previously signing "no taxes" pledges have reneged on them.   Instead, popular demand for new revenue to avert budget cuts has driven legislative movement on progressive tax and budget policy.

Adding to the general public support has been research consistently showing that progressive revenue increases during a downturn is a better alternative to cuts in order to promote growth and protect vulnerable populations suffering during the recession.

Finally, this Dispatch will outline some of the effective messaging and research to demonstrate to voters that progressive measures and tax increases are economically sound and go to the programs they want preserved -- the critical step in the success of revenue campaigns.

Revenue Options in 2010: Making the Case and Debunking the Myths

Last Tuesday, Oregonians overwhelmingly approved two ballot initiatives that ratified legislative action last year to increase high-end personal income and corporate taxes.  The failure of the anti-tax movement in Oregon is one more in a long stream of right-wing initiatives rejected by voters at the ballot box.  In fact, progressive revenue generation as part of a balanced approach to addressing state deficits has been popular with both voters and legislatures for years.  This Dispatch will provide both the facts and messages to debunk opposition to smart revenue options, while outlining a few of the best revenue approaches to filling budget holes.

Eye on Center for Fiscal Accountability

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Grover Norquist's Americans for Tax Reform has a policy center called the Center for Fiscal Accountability, where they promote many of their anti-government policies, from deadlocking legislatures with supermajority requirements to mandated spending limits to strangle social services.

Overview

While sales taxes often contribute to tax inequality, they can be made fairer by broadening the tax base of goods and services covered, especially with an eye to taxing legal and financial services used more heavily by richer consumers.

58% of consumer consumption is for services rather than goods.  The fact that most sales taxes do not cover services skews the tax burden towards those, often the poorest consumers, who spend more on physical goods rather than services.  Broadening the base of services taxes can allow a state to lower the overall sales tax rate.  For example, Hawaii and New Mexico, which have relatively low state sales tax rates of 4% and 5% respectively, tax more of the 168 services surveyed by the Federation of Tax Administrators than any other states (160 and 156 respectively).  

Such a broadening of the sales tax can also raise significant revenue.  According to a report  by the Center for Budget and Policy Priorities, sales taxes on services could bring states tens of billions of dollars in new income.