Some states plan to reduce taxes, but cuts are being made warily
If some governors have their way, many American taxpayers will have a bit more disposable income in coming months. At least 13 state chief executives have proposed, or are about to recommend, cutting taxes. These reductions, the first of which breezed through the Rhode Island legislature last month, total slightly more than $2 billion. They are the result of current state surpluses. Rhode Island's $36 million income-tax cut was signed into law Feb. 15 by Gov. Edward L. DiPrete.
But as politically appealing as pruning taxes may be, there are pressures for expanded spending on various programs, many of them deferred for some time due to lack of funds, notes Steven D. Gold of the National Conference of State Legislatures. While neither Mr. Gold nor others close to the state fiscal scene are willing to speculate concerning how many tax-reduction measures will be approved this year, they generally agree most will be modest.
The surpluses, in comparison with overall state spending levels, ``are not all that great,'' observes Jerry Miller of the National Association of State Budget Officers. He points out that state surpluses totaling $5.3 billion are anticipated. That is but 2.9 percent of the combined operating funds of the 50 states.
``Over half the surplus is in five states,'' Mr. Miller adds. A recent association survey produced the following forecasts of expected surpluses: California, $985 million; Minnesota, $57 million; New Jersey, $417 million; Texas, $396 million, and Wisconsin, $326 million.
State officials are hoping to convince Congress that the states, even those that appear to be in the best financial shape, are in no position to fill the funding gap that would be left should various state and local grant programs, including revenue sharing, be severely cut in the fiscal 1986 federal budget. Efforts to make this point with President Reagan during the recent National Governors' Association convention in Washington, D.C., appeared to have little impact at the White House. But the governors seem all the more determined to press Congress to go lightly with whatever federal, state, and local aid cuts there might be.
Since action on the federal budget for fiscal 1986 (the 12 months beginning next Oct. 1) is not expected until next fall, state governors and legislators are increasingly apprehensive that any tax reduction voted by the states in coming months might have to be short-lived. Because of this uncertainty and the possibility of leaner times in future years, most governors are planning to hold some surplus funds in reserve. Massachusetts Gov. Michael S. Dukakis, for example, is bent on starting such a ``rainy day'' fund with $20.5 million of the commonwealth's now-anticipated $137 million surplus.
Pending state tax-relief proposals range from $14.5 million in Delaware to $700 million in New York.
Other states where tax-cut proposals are pending include Arizona, Connecticut, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, and Wisconsin.
But governors in 16 states have proposed, or plan to seek, tax boosts: Colorado, Illinois, Iowa, Kansas, Maryland, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, South Carolina, Tennessee, Utah, and Vermont.
In addition, an Oregon measure, heading through the legislature toward a proposed statewide referendum next September, would through constutitional amendment impose a 5 percent limited sales tax. If approved, the new tax would raise an estimated $750 million a year, with 85 percent of it specifically earmarked to reduce property taxes and the remaining 15 percent for lowering the state personal income tax.
Most of the tax-trimming proposals by governors this year involve levies on earnings.
New York Gov. Mario Cuomo is seeking a three-year, $2.1 billion tax-relief package. In Minnesota, Gov. Rudy Perpich has proposed chopping the state income tax from 16 percent to 9.9 percent, for a savings of $604 million to taxpayers.
Delaware's new governor, Michael N. Castle, proposes a 5 percent, across-the-board income-tax reduction through increasing from $800 to $1,000 a taxpayer's personal exemption.
Arizona Gov. Bruce Babbitt is seeking a $20 million income-tax rebate and a $20 million reduction in statewide property taxes.
Gov. Dick Thornburg of Pennsylvania is urging cuts totaling $186 million, including $25 million in business investment tax credits and a $161 million lowering of the personal income tax, bringing the rate from the current 2.35 percent to 2.2 percent.
Connecticut Gov. William A. O'Neill Jr. wants to trim state taxes by $136 million through dropping the sales tax from 7.5 percent to 7 percent.
Wisconsin Gov. Anthony S. Earl has proposed a tax-reform package embracing increased deductions and other changes. He expects it to save taxpayers $132 million a year.
In Massachusetts, Governor Dukakis is calling for a one-time boost in personal income-tax exemptions totaling $64 million. He expects that to give a middle-class family of four, with both spouses working, an average of $44 more when filing their 1985 tax returns.
North Carolina Gov. James G. Martin seeks to repeal the current 3 percent sales tax on food and prescription drugs, reduce the intangible tax on savings, and prune the business inventory tax for an expected savings to taxpayers of nearly $396 million.