While taxpayers wait for federal rebate checks that Congress hopes will help jump-start a slowing economy, state officials across the country are floating their own programs to stave off a recession.
Pennsylvania Gov. Ed Rendell proposed a one-time tax rebate up to $400 for more than 475,000 lower-income working families. Illinois Gov. Rod Blagojevich wants to give families tax breaks by selling off sources of future revenue, such as the state’s share of the nationwide settlement with tobacco companies.
In Connecticut, some lawmakers want to send rebate checks of $50 to $290 to 1 million taxpayers. Legislators are also considering rental and heating assistance for needy families and a new revolving-loan fund to ease the subprime mortgage mess.
“We are in a unique position,” Connecticut Senate President Donald E. Williams Jr. said. “Shame on us if we can’t take action to help struggling families since we clearly have the resources to do so.”
It’s unknown how many — if any — of the proposals will become reality. Many were proposed by governors and legislators after Congress approved a federal stimulus package last month, which will send rebate checks ranging from $300 to $1,200 to millions of Americans and offer tax incentives to businesses.
“I think what happens is, they hear about it at the federal level — economic stimulus — and think: ’We’ve got to do something like that here,”’ said Nicholas Johnson, director of the state fiscal project at the Center on Budget and Policy Priorities in Washington.
But Johnson cautioned state lawmakers to think twice before following the federal government’s lead.
Unlike the federal system, most states have to balance their operating budgets. That means funding a state stimulus program could mean less money for education, health care, transportation and public safety, Johnson said.
“What a state ought to do is leave the macroeconomic policy ... to the federal government, the Federal Reserve,” he said.
Jared Bernstein, an economist with the Economic Policy Institute in Washington, questioned the wisdom of some stimulus ideas such as borrowing against future revenue to provide rebates.
But, he said, states with a surplus or reserve fund are smart to take action — whether it’s by sending rebates, helping homeowners facing foreclosure or revising eligibility rules for unemployment compensation.
“I would never say that states shouldn’t think about this,” he said. “Some states have surplus dollars, and it’s a good time to invest them. Think of it as, it is raining and if you have an umbrella, you should use it.”
In addition to rebates for low-income Pennsylvanians, Rendell has suggested initiatives that tackle everything from rebuilding dams and bridges to increasing job-creation tax credits for businesses.
“The economic future of millions of residents demands that we act now if we are to protect the gains we’ve made together in the past five years,” he said in a statement.
Some stimulus proposals tinker with tax law in hopes of helping taxpayers or encouraging economic growth.
Republicans in Iowa, for example, want to divert 1 percent of withholding taxes paid by businesses to pay for job training. They have also proposed extending the state’s sales-tax-free weekend to encourage more commerce and exempting certain improvements made to homes over the next five years.
Senate Minority Leader Ron Wieck, a Republican, said Iowa’s finances are in good shape. But he warned that problems could be looming, as reflected by declining revenue from the sales taxes and various fees.
“We’re at the brink and we’re going to maybe see some kind of downward trend,” he said. “If we can make any of a downward trend go away, or mostly go away, mission accomplished.”