Slashes and Tax Hikes Dominate Budget Proposals in California, Illinois and New York

On Jan. 10, Gov. Jerry Brown of California announced a state budget for the fiscal year beginning on July 1 that extends $12 billion worth of tax increases and cuts $12.5 billion in spending. The proposed budget, labeled "draconian" by CNNMoney, includes a five-year extension of a 2009 1 percent increase in income taxes, a 1 percent sales tax increase and a vehicle license fee hike. The budget's largest cuts attack public employee pay, state Medicaid and welfare programs and the California State University system. Jean Ross of the California Budget Project stated that "The families and children that depend on these programs would be hit yet again by deep reductions in service."

California isn't the only state slashing services and increasing taxes in frantic efforts to stabilize state finances that have fallen into disarray during the recession. Two other prominent examples currently making headlines are New York and Illinois.

I live in East Dubuque, Illinois, and here multiple matters have been rushed through as state lawmakers scrambled to pass policy during a "lame-duck" session that ends with the swearing in of new legislators on Wednesday, Jan. 12.

One of the stickier items is the Internet Tax Bill (HB3659). As reported through PRNewswire, this bill would require companies sponsoring affiliate programs to collect Illinois sales tax if a shopper arrived at their website from a link clicked on an Illinois-based website. Amazon's affiliate program has already stated that it would sever ties with Illinois affiliates if the bill is signed by the governor, and many other affiliate programs would follow suit.

The Internet Tax Bill was passed within 30 hours by both houses, which left little chance for small business to rally and present information concerning the downside of the bill. While it may seem like a revenue-generating idea to a frenzied state government, the bill, if signed by the governor, would actually lead to a decrease in revenue. When affiliate programs withdraw their services, not only will sales tax not be collected, but site owners will lose income, which contributes to a loss of income tax revenue for the state.

Income tax revenue is of particular importance in Illinois this week as the lame-duck houses rushed Monday to compromise on a large income tax hike. A 75 percent increase in income tax was being proposed but could not gain enough traction to push through, so a 66 percent increase plan surfaced, according to the Chicago Tribune. Unlike California, though, where both specific increases and cuts were proposed, Illinois hasn't pinpointed any specific programs to be reduced.

New York State actually is proposing a plan opposite of Illinois, with a budget based around cuts and restructuring versus tax increases in an already heavily taxed state. So far in New York, newly installed Governor Andrew Cuomo has cut his own salary and the pay of other senior state officials. He also has suggested a reorganization of the state's Medicaid program with the following quote from CNNMoney: "This is not going to be a budget-cutting or trimming exercise, we need to redesign the Medicaid program." Cuomo's other proposed changes include a wage freeze for state workers, the consolidation of state agencies that regulate Wall Street and property tax caps.

California, New York and Illinois are three states currently proposing either budget cuts or tax increases or a combination of the two. As more states begin to struggle to cover budget shortfalls, with 26 states having shortfalls that reach into the billions, according to the CBPP, these "draconian" moves will become standard policy and millions of Americans already strapped for cash will be adversely affected.