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In red, states seek tax hikes

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These comprise both spending cuts and tax hikes. Iowa is cutting back on schools, Kentucky is cutting library hours, and Minnesota, where the Republican governor has said he will not raise taxes during a recession, is proposing to cut $5 billion from state services.

Illinois is contemplating an 8 cent gasoline tax to raise $7 billion and one proposal in California is for a 13 cent per gallon tax, which would help raise $9.5 billion.

At a conference of US state legislators December, Standard and Poor economist David Wyss told legislators to first consider hiking gasoline and sales taxes.

Still, tax hikes remain an unpopular solution. Despite the severity of the 2001 recession – the worst in 50 years at that time – there were few tax increases, according to Donald Boyd, fiscal analyst for the Rockefeller Institute for Study of the States. But this time around, the recession is worse, he says.

All told, 40 US states are reporting an estimated $150 billion in budget shortfalls.

California’s crisis

In California, where state finance director Mike Genest declared that this is “probably the most challenging budget situation the state has ever faced,” legislative Republicans have blocked several of Gov. Arnold Schwarzenegger’s tax hike proposals.

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