The tax man cometh.
Not only is it going to be individually painful in 2010, but the collective hit to consumers could be enough to stall the economic recovery as well.
And 2010 is just the beginning. The International Monetary Fund, in a burst of pre-holiday cheer, warned Nov. 3 (.pdf file) to expect 10 years of spending cuts and tax increases.
That's right: 10 years.
Now that I've got your attention, let's start with the short-term squeeze, move to the long-term, then see whether there are any strategies for keeping the tax man from our doors.
I got a firsthand demonstration of the tax squeeze about a week ago. I'm the treasurer for the cooperative that owns the building where I live in New York City. November is budget time, and I met with the management company that runs our building to walk through what it would cost us to run our building in 2010.
It was shocking.
An example close to home
Of course, even though the Federal Reserve says there is no inflation, everything is going to be a little more expensive in 2010 than it was in 2009. Wages for the workers in our building, cleaning supplies, elevator repairs -- 3% here, 5% there.The problem was, however, that some things are going to be a whole lot more expensive.
Fuel to heat the building is going to cost us about 38% more in 2010 than it did in 2009. That wasn't a big surprise. Heating oil has climbed in price this year, and we got lucky at budget time last year and locked in at one of the lowest prices of the year.
And taxes. Our management company estimates that real-estate taxes will go up 18% in 2010. That's a huge hit and even more painful than the much larger percentage increase in the cost of fuel, because our real-estate tax bill is roughly five times the size of our heating-oil bill.
An 18% tax increase? Gulp.
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It's worse out West
And then I remembered that we had already seen a big tax increase earlier this year. In June, the city raised the sales tax for fiscal 2010 by 12.5%.An 18% tax increase on top of a 12.5% tax increase? Welcome to the post-financial-crisis United States of Debt.
Don't waste time feeling sorry for us here in New York. We're actually in pretty decent shape because the city had put away about $6 billion for a rainy day. That had made balancing the budget in fiscal 2009 relatively painless. Because of that surplus, the taxes didn't really hit the fan for us until the budget that began July 1 and stretches through next June 30.
You may well live in a state or city where the crisis hit earlier and harder.
California, for example, had to close what looked like a $36 billion budget gap in February. The state then watched a deteriorating economy open up an additional $24 billion budget shortfall by May.
Video: The tax man cometh -- Hoofy and Boo say so, too
And big states such as California aren't even at the top of the list when it comes to budget gaps. The top ranking goes to Nevada, with a 30% gap. Arizona comes in a close second.
Many states in a mess
According to the National Conference of State Legislatures, the total budget gap for the 50 states comes to $145 billion for the fiscal year, which ends in June 2010 for many states. The Center on Budget and Policy Priorities comes up with an even higher number: $178 billion.The conference also reports that 26 of the 45 states that reported numbers expect to collect less in taxes in fiscal 2010 than in 2009.
And that's even though 20 states raised taxes in 2009 to the tune of $27 billion. A slumping economy wiped out all the effects of higher tax rates.
And then, of course, there's fiscal 2011, generally starting next July. The Center on Budget and Policy Priorities calculates fiscal 2011's gaps at $80 billion for the 35 states that have put together estimates. With state revenues expected to continue to deteriorate well into 2010, the final tally, the center estimates, could be $180 billion or more.
The center also projects that states could still show a collective budget gap of as much as $120 billion as late as 2012.
Just for some context, the worst annual budget shortfall during the 2002-05 recession years was $80 billion in 2004.
Continued: Local entities lose state funding
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