State income tax hikes, of course.
The squeeze is especially severe in states hit hardest by the recession, such as Arizona, where sales-tax revenue has fallen by 10.5%, income-tax collections are down 15.7% this fiscal year, and the government faces a $3.4 billion budget gap next year. But such shortfalls are likely to be widespread; federal income-tax receipts from individuals have dropped more than 15% in the past six months, according to Congressional Budget Office estimates.
Brace yourselves. The lust for municipal spending is going to see no abatement, even while state and municipal pension funds are facing rather frightening unfunded obligations. One expects to see repeats of California's recent "to the public" bond issuance- a trend that we see mirrored in the Administration's hope that financial "Liberty Bonds" are the answer to toxic waste pits that pock the financial landscape at present.
Is debt the answer? It will have to be, because it really doesn't look much like tax revenues are going to recover anytime soon (the Administration's rosy economic projections notwithstanding). Does anyone else see some irony in the recursive folly of pitching to the public tax free bonds that will be funded by later tax hikes? Or is that just us?
What, exactly, is it going to take to slow down spending?
More States Look to Raise Taxes [The Wall Street Journal]