Tuesday, July 8, 2003

 

Overall taxes go up for singles in many states

A story published today in USA Today suggests that the federal government and the states are engaged in a shell game when it comes to taxes.  Congress lowers taxes for many taxpayers, but the states then raise taxes, resulting in an actual increase in taxes for many -- especially singles without children.

In the past few weeks, most workers have found a little extra in their paychecks. And soon, many families with kids will receive additional rebates from the U.S. Treasury. The money comes courtesy of the federal government. It cut taxes largely in the hope that consumers would spend more to buoy a soft economy.

But even before households decide what to do with their federal tax breaks, cash-strapped states and localities are claiming a chunk of that change. Starting this month, many are raising taxes on income, sales and property; excise taxes on cigarettes, beer and gambling; and fees for everything from birth certificates to college tuition.

The result is a bit of a shell game. And that raises questions about how much the federal tax break ultimately will stimulate economic growth.

Here's why: Congress is offsetting part of the federal tax reductions by forcing states to pick up some new costs, such as tightened homeland security. Many states already have been spending freely, but since they can't run deficits like Washington, they are raising taxes to narrow a combined $80 billion budget gap projected for the fiscal year that began July 1. That's 15% of the states' general-fund spending.

In fact, with at least 27 states already boosting taxes or fees and the other 23 weighing increases, some economists project that higher state and local levies will sop up at least half of any economic stimulus provided by the federal tax cut.

Consider a couple in Nebraska with two children and an income of $50,000. That family gets a $1,133 federal tax cut but has to pay $350 in higher state and local taxes, according to an analysis by the Omaha World-Herald. Many upper-income households in New York will be paying $1,000 or more in higher state income taxes alone, or 30% of their federal tax cut on average.

And single people, who get little federal relief, will pay more taxes overall in states that are boosting levies sharply, tax experts say.

That's important to remember when the take-home pay grows and Treasury checks arrive. This lunch from Washington isn't free, and the tab still has to be paid.

 


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