By PATRICK WHITTLE – Associated Press
PORTLAND, Maine (AP) — As inflation rages and coffers are crammed with cash, U.S. governors and lawmakers are considering a relatively simple solution to alleviate the pain people are feeling at the gas pump and grocery store — sending Money.
At least a dozen states have proposed giving hundreds of dollars in checks directly to taxpayers, including California, Kansas and Minnesota. Critics, including many Republican lawmakers, say those checks won’t go far enough given the pace of inflation, urging permanent tax cuts instead.
A proposal from Maine Gov. Janet Mills is among the most generous in a state where food and fuel costs have skyrocketed in recent months. The Democratic governor wants to give most residents $850 as part of the state budget.
The rebate “will help Maine people deal with these increased costs by putting money right back into their pockets,” Mills said.
But Wendell Cressey, a clamdigger in Harpswell, said rising fuel costs for people in his business mean the check will bring only temporary relief.
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“It might help a little but it would have to be a lot more because we’re paying for gas. Most of us have V-8 trucks,” Cressey said. “I just don’t think it’s going to help as much as they think.”
In addition to direct rebates, lawmakers and governors across the country are considering sales tax cuts, property tax breaks, and reducing or suspending state gas taxes.
The proposals come at a time when many states actually have too much money on their hands due to billions of dollars in federal pandemic aid and rising tax revenues. It also happens because the war in Ukraine has pushed up the prices of fuel and other essentials.
It’s also no coincidence that the relief is being circulated during an election year, said Mark Brewer, a professor of political science at the University of Maine. The Maine governor’s race is one of many closely watched state-level competitions this year.
“There’s a real political reason for this,” Brewer said. “But at the same time, it’s also clear that this is an election year, and in an election year there are few things as popular as giving voters what voters see as free money from the state.”
States are turning to sending people money as consumer inflation rose nearly 8% over the past year. That was the strongest increase since 1982.
According to the Penn Wharton Budget Model, a project from the University of Pennsylvania’s Wharton Business School, inflation has added nearly $590 to a typical family’s food spending over the past year. Overall, the average family spent $3,500 more last year to purchase the same amount of goods and services as in previous years.
In New Mexico, some have questioned whether Democratic Gov. Michelle Lujan Grisham’s plan for a $250 rebate goes far enough given how much consumer prices have risen.
Wayne Holly and his wife Penny were among small business owners in the state who were forced to close their doors early in the COVID-19 pandemic due to public health orders from the governor.
Their t-shirt and screen printing business barely weathered the storm, but is now feeling the pinch again as material costs soar and customers scramble to keep their own bank accounts from leaking.
“Are we getting customers who are angry and angry because things have changed? Yes, we certainly do,” said Wayne Holly. “Do we get customers who say, ‘I never paid for that before?’ I’m like, ‘Yeah, I’ve never paid $4.50 for a gallon of gas.’”
New Mexico’s rebate plan and concerns about how much it will help reflect a growing trend among states trying to find some relief for their residents in the face of criticism that they could do more.
Many states are awash with record amounts of cash, due in part to federal COVID-19 relief funding. Measures enacted by Presidents Donald Trump in 2020 and Joe Biden last year have collectively allocated more than $500 billion to state and local governments. Some of it is still sitting in the treasury, waiting to be spent.
These federal laws designed to alleviate pandemics also offered US taxpayers stimulus checks, which helped boost consumer spending on goods subject to state and local sales taxes. From April 2021 to January 2022, total government tax revenues increased more than 19%, adjusted for inflation, compared to the same period last year, according to a recent report by the Urban Institute.
“Overall, state fiscal positions are strong and much better than we anticipated when the pandemic began,” said Erica MacKellar, fiscal policy analyst at the National Conference of State Legislatures.
This gives state officials more confidence to consider tax rebates or direct payments to residents. However, some financial experts are advising caution, pointing out that inflation could also boost government spending and wages.
“State legislatures should not be hasty in enacting permanent tax cuts based on potentially temporary real revenue growth,” wrote Lucy Dadayan, senior research fellow at the Urban Institute, in a recent analysis.
Relief plans vary from state to state. Minnesota Gov. Tim Walz, a Democrat, released a plan for using the state’s budget surplus that included a proposal for income tax refund checks of $1,000 per couple. In California, Democratic lawmakers have released separate proposals to give each taxpayer rebates of between $200 and $400, while Gov. Gavin Newsom said he wants to hand out fuel cards of up to $800 to ease the burden on residents who pay the highest gasoline prices the nation.
Democratic governors in other states have suggested different approaches. Pennsylvania Gov. Tom Wolf is seeking a one-time property tax subsidy for low-income homeowners and renters. In Illinois, Gov. JB Pritzker has proposed halting a 2.2-cent increase in the motor fuel tax, suspending a 1% grocery sales tax for a year and providing a property tax reduction of up to $300.
New Jersey got out early. Gov. Phil Murphy and the Democrat-led Legislature included cash checks for up to $500 to about 1 million families as part of a budget agreement last year when the governor and lawmakers were up for election.
The state’s rosy financial picture, fueled by healthy tax revenues and federal funding — as well as higher taxes on people who earn $1 million — has continued this year. But Murphy’s fiscal 2023 budget doesn’t include any additional cash rebates.
In other states, aid proposals have not gone so smoothly. Vermont Gov. Phil Scott, a Republican, has proposed returning half of a $90 million surplus in the state education fund to state wealth taxpayers with a check for between $250 and $275, but the Democratic-controlled Legislature has little shown interest.
“Typically, if you overpay for something, you get some of that money back,” Scott said of making the proposal earlier this month.
Associated Press writer Susan Montoya Bryan in Albuquerque, New Mexico; Mike Catalini in Trenton, NJ; David A. Lieb of Jefferson City, Missouri; Wilson Ring in Montpelier, Vermont; and business journalist Christopher Rugaber in Washington contributed to this report.
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