State Tax Receipts Are Down--Are Your Savings Next?

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State tax receipts are plummeting--what does this mean for you?

To say that state tax receipts are down is hardly news.  Between unemployment driving down state income tax receipts, a laggard consumer market cutting sales tax, reduced driving pulling down gas taxes and businesses shutting their doors or moving elsewhere to drive down corporate tax receipts, the tax picture has never looked worse for the states.  But what does that mean to you?  The biggest thing is that states will either need to cut budgets or raise dollars, and often both. 

There are three things that jump out at me that this means--here's how to protect yourself.

State debt may offer better rates.  Cash-strapped states may look to borrow, and thus offer better bond rates for those interested in investing in a state government.  Though there is a chance of default on this debt in the future, it is somewhat abrogated by the fact that states take in money every year thanks to taxes on whatever's left.

State taxes may go up.  Thus, if you have the choice to take income in 2010 or 2011, you may want to stick to the devil you know rather than the devil you don't.  Any state tax hike is likely to take effect not this year (being as this year's already a third over with, almost) but rather next year.  Also consider where you may be able to take more deductions if you have a small business or itemize your annual tax returns.  The more deductions, the less paid out.

City taxes, where applicable, may also go up.  Counties and cities that depend on revenue sharing with the state will get a smaller chunk of the pie since the overall pie is smaller.  So in places where there are city or county taxes, you may want to consider moving before the city or county in question gets the idea to jack up taxes.  Even if you have to commute a little longer to get to your job, chances are the extra gas money won't be as high as jacked-up city taxes, county taxes, or even property taxes.

It's all about adding to your savings out here at Best Cash Cow, and when you can protect your current savings, that's just as good.

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