Compared to previous years, the budget outlook for the states improved only slightly in 2010 and virtually every state continued to face a budget shortfall. As a result, the overwhelming majority of state policymakers were put in the unenviable position of having to address some very difficult budgetary issues. Lawmakers were forced to make the difficult choice between painful spending cuts and tax increases or a combination of both. State legislatures handled this quandary in a variety of ways.
This report takes a close look at the significant tax law changes enacted by state governments across the country from Hawaii to Maine in 2010. Most of these changes were designed to close state budget gaps, though some states inexplicably chose to enact costly tax cuts despite lagging revenues. 2010 was an especially challenging year for lawmakers seeking to enact sensible tax reforms, both because of the difficult political environment surrounding an election year and the fact that many states had just emerged from bruising tax reform debates in 2009.
This report presents the good, bad, and ugly major tax policy actions that were taken in 2010. Most “good” changes were designed to mitigate big cuts in vital state services, while the majority of “bad” changes actually worsened states’ already bleak fiscal outlook. “Ugly” changes raised taxes on the lowincome families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or handcuffed the ability of states and localities to raise needed revenues in the future. In addition to highlighting some of the more controversial issues discussed in 2010, this report also looks ahead to the issues that will likely be in the forefront of state lawmakers’ minds in 2011.