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Gubernatorial Candidate Announces $6.5 Billion in Tax Increases

December 3, 2009

State Representative Alma Wheeler Smith (D-Salem Twp.) has announced a proposal that would increase tax revenues by $6.5 billion.  Smith, who has announced as a candidate for the Democratic nomination for governor, hopes to have the plan adopted by the end of January.

The proposed increases would come from three sources.  $3 billion would come from the elimination of various tax expenditures.  These are generally tax credits that benefit certain types or categories of businesses (including small business credits).  The plan does not specify which of these would be eliminated. 

Another $2 billion would come from changing the state’s income tax from a flat rate to a graduated income tax.  A graduated income tax would have escalating rates for higher levels of income.  The current income tax rate is 4.35%.  Under Smith’s proposal, the rates would change as follows:

·    A 4% rate for those making less that $45,000.
·    A 7% rate for those making between $45,000 and $60,000.
·    And a 9.75% rate for those making more than $60,000.
·    These income levels reflect single taxpayers so they would double for joint filers.

It should be noted that a graduated income tax would change the State Constitution and therefore require a ballot proposal.

$1.5 billion would come from expanding the sales tax to include services.  What services would be included or not included was not specified. The proposal would expand the tax to services, but would lower the current 6% rate to 5.5%.

Much of the increased revenue would go toward funding education programs, and $500 million would be used to eliminate the MBT surcharge.  While eliminating the surcharge is a top priority for SBAM, this price is too steep.

Alma Wheeler Smith is in her last term in the State House.  She also served in the Senate.

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