June 16, 2010; Source: stateline.org | The state budget crisis for nonprofits is generally mischaracterized as a problem of which cuts states ought to make—and consequently, which public services and nonprofit providers get their axes gored. More fundamental to the budget crisis is the antiquated and inadequate mechanisms that states use to raise revenues.

As Stateline.org of the Pew Trusts notes, the states are slow—almost immobilized—about coming to grips with the revenue side of their budget crises. Stateline says that the states have punted on the revenue raising side of the solution. Only Kansas and Arizona decided to raise their sales tax rates, though several have removed some exemptions on various items (for example, candy and soda in Colorado are now subject to a sales tax).

Colorado has followed Oklahoma in taxing Internet purchases—the so-called “Amazon” tax—though Amazon and other Internet retailers have fought against those bills in other states. Amazon specifically punished Colorado by shutting down its affiliate program in the state, apparently taking a toll on in-state retailers that were cross-marketing Amazon products.

Some states have—finally—begun to reconsider the variety of tax credits they hand out sometimes willy-nilly to businesses (and others) that don’t do much other than forgoing needed revenues. Iowa eliminated $115 million in job creation tax credits having determined that the credits weren’t creating jobs. Oklahoma suspended for the moment tax credits for historic building renovations and for wind energy, while Wyoming actually initiated a tax on wind power generation.

The politically easiest tax to raise seems to be the tax on cigarettes and tobacco, more than a dozen states hiking tobacco taxes in the past year or so. But the total revenue generation from tobacco taxes in all 50 states only comes to $3 billion. Add in those states going after alleged tax cheats (like New York chasing Dionne Warwick), and you have a mix of states “nibbling around the edges” to achieve short-term fixes.

Which states are looking at long term solutions to the “broken systems that produce ongoing structural deficits?” They’re few and far between. Nonprofits ought to be leading the public discourse not just on which programs to save, but how to address states’ revenue-generating dysfunctions that annually lead to deeper and more intractable budget crises.—Rick Cohen