Nation: What Relief?

Even if the Administration’s tax program should somehow survive, taxpayers may be in for a disappointment. Instead of spending all the cash released by a federal tax cut, they may well be forced to merely put much of it in another envelope—and send it off to their states. Some states have been fiscally irresponsible, some have neglected real needs too long, some have let partisan politics block tax progress. Whatever the reason, a recent Tax Foundation survey found that the states are planning to increase taxes by nearly $1.5 billion this year—well over half of the $2.7 billion cut that the President proposes for the same period.

New York, inevitably, furnishes a fascinating example. Republican Governor Nelson Rockefeller, now conceding that he made “a beaut of a mistake” last sum mer in the midst of his campaign for re-election in overestimating New York tax revenues by some $200 million for the coming fiscal year, nevertheless claims that he will observe his campaign pledge not to raise taxes. He is asking for a $48 million increase in state auto license fees and a $57 million hike in liquor license charges. Without a smile, he insists that these are not tax increases. Irate motorists, many of whose auto tabs would go up from $8 to $20, cannot see the difference. Republican legislators are feeling the heat at budget hearings in Albany.

Nebraska has long bragged that it has neither a sales tax nor an income tax, relies upon a property tax. Yet, its School for the Deaf cannot meet minimum standards for the care of children, the University of Nebraska’s College of Medicine is in danger of losing accreditation because of poor facilities, and the university insists that it needs to boost its budget by one-third. An income tax now is probable. New Jersey is so closely divided between the two major political parties that its Governors have long been afraid to risk defeat by suggesting either a sales or an income tax. Yet its excise taxes are no longer adequate. Democratic Governor Richard Hughes has suggested a politically safe way out: a $750 million bond issue to be repaid from New Jersey turnpike tolls. That would bring in some $42 million a year—about half paid by out-of-state drivers.

Sleight of Hand. California’s Democratic Governor Pat Brown finds his budget $150 million short this year, plans to make most of it up by advancing the due dates for corporate and personal income taxes and by dipping into oil-royalty reserves. That would still leave him short next year, so he has proposed putting income tax collection on a withholding basis—another sleight-of-hand procedure that would yield a one-time windfall in shifting to pay-as-you-go. Part of Brown’s budget planning is based on the doubly doubtful proposition that Kennedy’s tax program will pass and that it will result in revenue-producing business expansion in California.

In Illinois, Democratic Governors and Republican legislatures have long been unable to agree on basic tax changes, turned instead to a hodgepodge of sales, racetrack, gas, liquor, cigarette and utility taxes. Welfare costs are soaring, some $200 million more are needed in the coming biennium, but no agreement on enacting an income tax seems possible.

After years of solvency, New Mexico is in trouble because of mounting school costs. It has depended largely on a 2% sales tax and a portion of property taxes. But the property tax is grossly unfair, since county assessments range all the way from 2% to 98% of value. Until new Democratic Governor Jack Campbell last week called for a stiff hike in the state’s low income tax rates, such offbeat solutions as a 10¢ tax on race-track passes, a 5¢ stamp to be affixed to each glass of liquor sold over bars, and a nickel tax on Christmas trees (nicknamed the “Scrooge Bill”) were considered.

Taxing TVA. Oregon is about to give up its distinction as the only state not taxing cigarettes, since a postwar surplus of $32 million has disappeared and Republican Governor Mark Hatfield is seeking $50 million in new taxes. Tennessee’s Democratic Governor Frank Clement, needing some $30 million extra, has decided to attack a Democratic sacred cow; he wants to extend the sales tax to electricity sold by TVA.

It took Ohio’s new Republican Governor James Rhodes to come up with an old-fashioned approach to such problems: he is really trying to reduce state spending. Following the suggestions of his tough finance director, Richard Krabach, Rhodes fired 3,500 new state employees, ordered all departments to slash spending by at least 9.1%, which will knock out another 5,000 employees. This has led civil servants to define an optimist as “a state employee who takes his lunch to work.” Krabach got some 7,000 corporations to pay their taxes early, talked distillers into waiting longer for much of the $70 million that Ohio owes them for liquor sold to state stores. He even ordered state employees to work on Lincoln’s and Washington’s birthdays. A critic of Democratic tax and spending theories, he declares: “There is only one thing that creates wealth, and that is work.”

In at least a couple of states, the taxpayers are even getting a break. In Colorado, where Republican John Love defeated Democratic Incumbent Stephen McNichols mostly by promising to cut taxes, the state legislature has already approved a 15% across-the-board income tax reduction. Love benefited by the fact that McNichols had sharply raised taxes. And in North Carolina, Governor Terry Sanford has an embarrassment of riches: he pushed a sales tax on foods through the state legislature, found that it brought in so much money that it caused more than a $100 million budget surplus, and is now urging an increase in income tax exemptions to give some of the surplus back to the taxpayer.