Even though the conference committee significantly scaled back state aid relative to the House version of the bill, states can still expect some pretty significant assistance in the near future. Unfortunately, those states are also facing even more significant budget gaps, which are likely to continue to grow larger in the coming months. To make up the difference, states will have to take responsibility for finding ways to close their budget gaps.
Policymakers in New York are readying themselves for the challenge. As the New York Times reported earlier this week, members of the state Senate are preparing legislation to close $6 billion of the state's roughly $14 billion budget deficit by raising income taxes on individuals and families making more than $250,000.
In particular, the bill would impose a tax rate of 10.3 percent on those taxpayers with incomes in excess of $1 million. In other words, faced with a mammoth fiscal and economic crisis, legislators in New York seem ready to respond accordingly -- with a proposal that reforms their tax structure in a fundamental and progressive fashion. Their counterparts in other states (many of whom are trying to muddle through with a combination of budget gimmicks, one-time fixes, and minor tweaks to sin taxes) should do the same.
For more on the steps needed to tackle New York's budget problems, see this commentary by Frank Mauro and James Parrott of the Fiscal Policy Institute.