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States may hold tax refunds

USATODAY.com reports that states in trouble are likely to withhold state income tax refunds for months while they struggle with record deficits, etc. California and New York are mentioned in the article along with several others.

We suspect this problem will become more widespread, especially if Congress manages to cram its health care bill through.  The bill contains a number of unfunded mandates for states, which will make their cash crunch even worse.

States cannot print money to cover their debts, as the Federal government can, nor can they really be sued for money owed.  What WILL happen, however, is that states will become increasingly unable to borrow money, and more government and contracted services will end as vendors refuse to do business with states.

Indiana is actually in better shape than many states, with employment rising about 5% in the last month or so, and this is largely because the state as actually kept its taxes LOW, which makes it easier to do business here.

Unfortunately, unfunded mandates passed by the federales essentially amount to a tax increase, because state and local governments have to do SOMEthing to cover the costs.  When will Washington learn?  Maybe never, but that’s what elections are for.

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