U.S. states are getting desperate for cash in the face of soaring budget deficits. And they’re becoming more creative with ways to continue their out-of-control spending habits.
Sure, states could go old-school and up their income taxes or enact them to begin with, like Alaska and Wyoming are considering.
But the rubber is really hitting the road as some states in search of funds are looking to pump-up user-based taxes, such as gas taxes, sales taxes and use taxes.
Here are a few of the latest examples:
- Alabama taking advantage of law to collect taxes on Internet use.
- Tennessee, Oklahoma and Indiana angling to raise gasoline taxes to fund road and bridge repairs.
- Utah lawmakers consider food tax hike.
How’d We Get Here?
Fiscal analyst Chris Edwards at the Cato Institute noted that state general fund spending soared 32 percent since 2010.
In the meantime, the situation is made worse by …
- A decline in tax receipts and slower economic growth.
- Lower oil revenues in key producing states like Alaska, Kansas, Wyoming, Oklahoma and North Dakota.
- Payback time after years of playing kick-the-can with liabilities.
But what about the pink elephant in the room … the Affordable Care Act.
Talk of repealing and replacing Obamacare has states on pins and needles. That’s because the Federal government currently picks up most of the tab.
But a larger portion of the funding becomes the state’s problem in the coming years.
And that’s why a growing number of state governors – on both sides of the isle – balk at repealing Obamacare without a good substitute.
In addition to dropped insurance coverage for millions, an insufficient alternative to Obamacare would destroy state budgets and hurt hospitals.
This point was made clear at the National Governors Association’s winter meeting in Washington last week. A presentation by media company Axios described a sample state that expanded Medicaid would lose $635 million in federal funding, a 65 percent decrease.
You read that right: A whopping 65 percent hit to the states. Awful!
No wonder the long faces after the meeting!
Tax Hikes a Temporary Fix
Connecticut and Illinois have already pursued record tax hikes to boost their coffers. But the result was a falling tax base as top earners fled the state to avoid higher tax bills.
Now, Connecticut faces a $300 million deficit for the 2017–2018 year. That number for Illinois is an eye-popping $8 billion.
Talk about desperation!
I could go on, but you get the point: State spending habits are out of control and the federal purse strings are closing.
This should come as no surprise to my members: I’ve talked frequently about how governments facing revenue shortfalls become desperate and ultimately turn against the people, stripping away civil liberties and their pocketbooks in the process.
But in difficult times like these, there will always be opportunities. I’ve already advised members to begin protecting their wealth with specific investments. Don’t be left behind in these dynamic times: Join the Real Wealth Report now.