One much publicized selling point of the Federal trillion dollar Porkzilla stimulus legislation was a modest reduction in Federal Income tax withholding for most Americans.  As President Obama explained, the idea was to put more money in peoples' pockets so they could spend all that new found cash, and get the economy going again.

That was the theory.

The only problem with all this is that every State and taxing locality in the country was watching.  And most states and municipalities have seen their own tax revenues plummet.  And now, as many taxing authorities scrounge for cash - guess what - they are eying that fattened worker-bee wallet, courtesy of the Feds.

Some time ago, the State of Arizona enacted a rather curious income tax calculation method that was tied not to income, but to the amount of Federal taxes withheld.  We suppose that the Arizona legislature foolishly assumed that taxes only ever go up, and never go down.  So, the State of Arizona, already struggling to close it's own budget gap, found to it's horror that when Federal income tax withholdings dropped, so did the withholdings for Arizona State income tax.  Accordingly, the Arizona legislature scrambled to raise the Arizona income tax rates to compensate for the proportional drop.  And of course this in turn forced payroll providers across the United States to scramble to implement those changes.   Next year, Arizona will depart from this loopy income tax withholding schema, and separate themselves from fluctuations in Federal withholdings.

The State of California has recently raised income taxes, after a long drawn-out legislative saloon fight (hey, it is Hollywood and all).  The State of New York has also raised taxes, which included a much publicized "millionaires" tax, even though it impacted people making $300,000 and up.   We leave it to the NY Governor to explain how 300K makes a person a millionaire.  Only in New York.  Of course, as rationale, New York cited the "success" of a similar tax enacted years earlier by their sister state, New Jersey.  The only problem there is the wealthy people in NJ have been steadily leaving the state since then, and the New Jersey government is being dishonest about it. 

Across the country states are seeing their tax revenues plummet, and are angsting about how to close their budget gaps.  After all, only the Fed can print as many trillions as it needs, the States don't have that authority, so they have to come up with bona fide sources of tax revenue, borrow, or cut.  To be entirely fair, many states, including Arizona, have been looking for ways to cut spending as part of their efforts to balance their fiscal houses.  However, we say - not good enough.

The states all know that their taxpayers are taking home more money this year than last because of the Stimulus bill, and they are eying that new disposable income greedily.  And this is not unprecedented.  During the Reagan/GHWBush  Era, when the top tax brackets were significantly lowered, many states turned around and made a grab for a piece of that 'found money' from the upper class who chiefly benefited from these reductions. 

There are rumblings that a similar phenomena is developing now.  For some states like California and New York, the grab is overt - directly targeting income tax increases.  And for others, it can be more insidious, as large jumps in fee based services and "sin" tax increases.   We do know that national payroll providers are wary, and expecting one of the busiest mid-year tax rate change seasons in a very long time.

The Federal Stimulus bill put a very modest amount of extra cash into the pockets of middle class America, and the State and Local taxing authorities are already in advanced plotting stage to taketh away, which neutralizes the intended stimulus effect.  Beware the Law of Unintended Consequences Mr President.  Surely you should have learned that from George W. Bush.

We don't have the research resources here on this humble blog to analyze the cost cutting efforts by each state and grade them on good, bad, and fugly, but we still feel it is relatively safe to assume, for most, it's woefully inadequate.  Of all the things Government hates to do, shrink itself is most hated.  Spending program cuts are usually superficial, and relatively rarely do Governments chop deeply.   To our cynical eye, the cuts are usually for show so the politicians can sell the idea to tax increases to meet the cost reductions, netting a balanced budget.   These tax authorities have to do more to chop, and chop deep.  If stupid taxpayers demand the same service levels, but refuse to pay for them, then they don't get those service levels.  Simple as that.

The recent Tea Party protests were one obvious sign that at least some of us in the electorate have had enough.  The Federal government has gone hugely into debt to fund an economic recovery package to right a topsy-turvy economy, and the State/Local governernments are working at cross-purposes to solve their own problems, and largely doing a lousy job of it.

And, of course, we all know that the Federal Government is not only not cutting (except to undermine our military strength), but instead has massively increased spending money it hasn't got, but is willing to either borrow or print.

The Failed State is not off in the distant future, it's here, and it's now.   If ever there was a time in our history for voters to drop their lazy apathy, shake off the comfortable blanket of ignorance, and start kicking out professional politicians, and install in office serious citizens determined to fix this mess - that time is now.

For ourselves, the first professional politician we'd like to see run out on a rail is Arlen Spector, who cynically changed party affiliations just to save his own job.  Wrong reason, pal.  Are you listening voters in Pennsylvania?  Throw the narcissist out on his butt.