Kentucky Center for Economic Policy: Four Revenue Options that Should Be on the Table
ITEP Work in ActionThe Kentucky legislature is debating ways to address the hole in the state’s Medicaid budget. The options under consideration include immediate across-the-board budget cuts as well as eventual cuts to non-education programs if the governor’s proposed Medicaid savings for 2012 are not achieved. But before enacting painful cuts that are on top of several years of reductions, Kentucky leaders should consider revenue options that are a sensible part of a more balanced approach to the state’s budget challenges.
Since 2009, 40 states have raised taxes or tax-like fees as a part of their approach to addressing the recession-induced decline in revenues.[1]Twelve states have raised overall revenues by more than five percent as a way to help balance their budgets.[2]Rather than harming recovery, revenue increases are often preferable to budget cuts in terms of their economic impact. Former director of the Office of Management and Budget Peter Orszag and Nobel Prize economist Joseph Stiglitz noted in relation to the last recession that “tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy during the short run.”[3]