The entire fiscal cliff drama in Washington was made possible because of the temporary nature of the Bush tax cuts, which were set to expire. That gave President Obama leverage to negotiate tax increases on some Americans. The states, by contrast, are heading in the opposite direction. Governors and state legislatures have heavily relied on temporary tax increases to close budget gaps over the past four years, and now many states are letting those increases expire, resulting in net tax cuts for residents. In most places there's little appetite for extending or making permanent those tax increases, even though budget woes continue. Take Oregon, for instance. In 2009 residents approved a two-year surcharge on income tax rates for those earning more than $125,000 a year. The legislature declined to extend it in 2012, producing an estimated $133 million tax cut despite pressure by some progressive legislators to make the tax permanent. "The people have voted, and they expect [the reduction to a lower rate] to happen," Oregon House Republican leader Kevin Cameron told the press.
Delaware similarly raised income taxes temporarily in 2009 on those earning more than $60,000 annually. The tax was set to expire in 2014, but the state sped up the expiration date, letting the increase disappear last year.
In NJ, Gov. Chris Christie allowed a temporary income tax surcharge on wealthy residents, which expired before he took office, to stay dead once he was inaugurated in January of 2010, despite pressure to renew it. His predecessor, Jon Corzine, had instituted the temporary surcharge. Lately Christie has targeted other quick fixes from the Corzine era for elimination, including a temporary increase in the minimum tax paid by corporations in the Garden State, which hit small sub-chapter S corps. hard.
Michigan reformed its business taxes in 2011 and paid for some of the cuts in the state's onerous Michigan Business Tax by shifting the burden onto the state's personal income tax. Then last year Gov. Snyder lightened that burden a bit by reducing the top income tax rate to 4.25 percent and raising the amount of the personal exemption.
A few states simply cut taxes last year, including Idaho, which pruned its top income tax rate to 7.4 percent from 7.8.
Much of talk of state taxes has revolved around California's Proposition 30, the highly visible state taxing initiative which raised sales and income taxes. But states in general have actually been net tax cutters recently, especially when you factor in how they've been letting previous temporary tax increases expire.
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