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Budget Deficits Create Opportunity to Improve State Tax Policy 

Posted on Sep. 7, 2020

Michael Semes is a professor of practice in the graduate tax program at the Charles Widger School of Law at Villanova University and of counsel at BakerHostetler. He thanks Jonathan Onufrak and Matthew Boling for their research assistance and Jared Walczak of the Tax Foundation for his input.

In this article, Semes provides a framework for taxpayers, government representatives, and all others able to share valuable perspectives to engage in productive conversation about using the state budget crisis to improve state tax policy and fiscal health.

The views expressed in this article do not necessarily represent those of Villanova University or BakerHostetler or its clients.

Nobody foresaw the unprecedented decline in state tax revenue caused by the COVID-19 pandemic.1 While the degree of decline may be debated, nobody disputes that COVID-19 has caused a historic state budget crisis.2 Further, the multitude and complexity of confounding factors that affect budget shortfall estimates make it impossible to accurately predict the future of the economy and state revenue collections.3 All this uncertainty, however, raises the question of how (not whether) can we take advantage of this crisis — and not let it go to waste.4

This article provides a framework for taxpayers, government representatives, and all others able to share valuable perspectives to engage in productive conversation to use the current state budget crisis to improve state tax policy and fiscal health. To further honest and courageous dialogue among stakeholders, this article will address the following:

  • what is the current state of state budgets, and what might be expected over the next several years;

  • what lessons can be learned from how the 2001 recession, the economic collapse of 2007 to 2009 (Great Recession), and the Great Depression (collectively, the Prior Downturns) affected state budgets;

  • what tools may a state use to deal with this crisis; and

  • how can all interested stakeholders collaborate and use this crisis to improve state tax policy and fiscal health?

COVID-19 Has Caused a Historic State Budget Crisis That Will Likely Continue for Several Years

The State Budget Crisis

Virtually every state has experienced a fiscal 2020 (FY20) revenue decline and expects even larger fiscal 2021 (FY21) and 2022 (FY22) declines.5 The five largest states project combined revenue declines of more than $72 billion for FY20 and FY21 (see Table 1).

Table 1.a

Projected Revenue Declines for the Largest Statesb

 

FY

Percentage

Amount (in $ billions)

California

 

 

FY20

7%

$9.7

FY21

21%

$32.2

New York

 

 

FY20c

-

-

FY21

14%

$12.4

Texas (biennium)

FY20-21

9.5%

$11.6

Pennsylvaniad

 

 

FY20

8.9%

$3.7

FY21

-13.5%

-$4.3

Illinois

 

 

FY20

7%

$2.7

FY21

12%

$4.6

Total

$72.6

aTable 1 compiles data from the following sources: California Department of Finance, Fiscal Update 2020-21 May Revision (May 7, 2020); New York, FY 2021 Enacted Budget Financial Plan; Texas Comptroller, The 2020-21 Certification Revenue Estimate Update (July 20, 2020); Pennsylvania Independent Fiscal Office, Initial Revenue Estimate (May 2020); and Illinois Governor's Office of Management and Budget, April 2020 Revenue Forecast Revision (Apr. 15, 2020).

bWe have not included Florida because this data was not obtainable.

cUnlike almost every other state whose fiscal year ends June 30, New York’s fiscal year ended March 31.

dPennsylvania projections for FY21 “assume a more moderate downturn and a quicker recovery” than national forecasts “due to the composition of the state economy and flat income tax structure.” Pennsylvania Independent Fiscal Office, Initial Revenue Estimate (May 2020).

Table 2.a

Organization

Projected Revenue Decline

FY20 and FY21

(in billions)

Tax Foundation

$191

Makidris & McNab

$90 to $140b

Tax Policy Center

$200

Moody’s

$275

Center on Budget and Policy Priorities

$400c

aJared Walczak, “State Forecasts Indicate $121 Billion 2-Year Tax Revenue Losses Compared to FY 2019,” Tax Foundation (July 15, 2020); and Lucy Dadayan, “COVID-19 Pandemic Could Slash 2020-21 State Revenues by $200 Billion,” Urban-Brookings Tax Policy Center (July 1, 2020). The Tax Foundation number is against FY20 and FY21 growth projections. The Tax Policy Center estimate is against pre-COVID-19 projections. See also National Association of State Budget Officers, State Revenue Forecasts; Moody's Investor Service, “Revenue Recovery From Coronavirus Hit Will Lag GDP Revival, Prolonging Budget Woes” (Apr. 24, 2020). See also Walczak, “Designing a State and Local Government Relief Package,” Tax Foundation, at 3 (May 2020): “Moody's projects that FY 2021 state revenues could be 18.5% lower than prior projections, and 14.3% lower than states actually raised in the last fiscal year. The NCSL, in its request to Congress, projected revenue losses of 15-20%. Local governments tend to rely on a more stable tax mix than states, so slightly better outcomes seem likely. Taken together, state and local revenue declines of about 15% form a reasonable assumption, subject to revision as time passes.” (Footnotes omitted.)

bWe understand that the authors' estimate ($79.9 billion to $125.2 billion) is for the 2020 calendar year, and further, we have converted these figures to 2020 dollars.

cCBPP estimate is budget shortfalls for FY 20 and FY21, not revenue declines.

Economists may disagree over the degree of projected decline. Table 2 illustrates, however, their agreement that COVID-19-induced revenue declines will likely be significant.

Finally, Table 3 illustrates that the Center on Budget and Policy Priorities projects that the COVID-19-induced state budget shortfalls could exceed those experienced in either the 2001 recession or the Great Recession.6

Table 3.

Prior Downturn Economic Trends Point Toward Future Revenue Declines

In the first three years of each prior downturn, the national unemployment rate, Dow Jones Industrial Average (DJIA), and gross domestic product roughly correlated (with the national unemployment rate inversely correlating) with state revenue collections (see Table 4).7 At the beginning of COVID-19, these economic indicators behaved similarly to how they behaved at the beginning of the 2001 recession and Great Recession. These indicators, therefore, suggest that — without considering confounding factors unique to COVID-19 (for example, quarantine, travel restrictions, and the uncertain duration of the pandemic) not present in the Prior Downturns — state revenue collections will decline following COVID-19.

Table 4.

Historically High National Unemployment Figures Suggest States May Face Their Largest Budget Shortfalls in History

As Table 4 illustrates, during the 2001 recession and Great Recession, state revenue collections decreased in inverse proportion to the national unemployment rate. Since COVID-19, the national unemployment rate has peaked at 14.7 percent, surpassing the Great Recession’s highest rate of 9.9 percent,8 the highest rate since the Great Depression.9

The Brookings Institution reports that a one-point increase in the national unemployment rate corresponds to a $45 billion decrease in state budget collections.10 Therefore, a 10 percent increase in the national unemployment rate suggests a state budget shortfall of roughly $450 billion over the next 12 months.11

The DJIA Trend Is Similar to the Beginning of the Great Depression, 2001 Recession, and Great Recession

Table 5 illustrates that the DJIA declined at the beginning of COVID-19 at least as sharply as it did at the beginning of each prior downturn.12 Table 5 also illustrates that the DJIA’s recent rebound mirrors its rebounds shortly after the beginning of each prior downturn.13 While far from being conclusive, current DJIA performance compared with its performance in the Prior Downturns reinforces the potential severity of the current state budget crisis.

Table 5.

The data in tables 614 and 715 illustrate another dimension — and possible explanation for — the current DJIA rebound. These tables show two parallel trends in April 2020:

  • individual savings increased by nearly the same amount as federal stimulus payments; and

  • consumer consumption and actual employee compensation declined at about the same rate.

Of course, it is impossible to definitively decipher the ultimate reason for these parallel trends. That said, it is not unreasonable to conclude that individuals:

  • believe that COVID-19 will present a longer-term drag on the economy and, for that reason, April consumer spending was somewhat greater than compensation ($12 billion compared with $10.5 billion) in anticipation of quarantine; and

  • saved almost the entire amount of federal stimulus payments ($6.1 billion of $6.3 billion) in anticipation of a “rainy day” (or perhaps because they did not need to rely on stimulus payments).

Table 6.
Table 7.

Therefore, these tea leaves may be read to say that the short-term cash flow provided by the federal stimulus payments created a bit of “irrational exuberance.”16 In turn, this has contributed to a rising DJIA — despite a decline in individual income, softening of the economy, and other negative economic factors (for example, declining GDP and rising unemployment).17

GDP Has Declined at a Historically Rapid Rate Compared With Prior Downturns, Indicating Larger State Revenue Shortfalls

During the Prior Downturns, GDP declines preceded state revenue declines. During the first quarter of the 2001 recession and Great Recession, total GDP declined by 1.1 percent and 2.3 percent from the previous respective quarters (see Table 8).18 In the second quarter of 2020, GDP dropped more than it has in any quarter since GDP has been recorded,19 and leading economists forecast GDP to grow, although not back to pre-COVID-19 levels, over the final two quarters of 2020 and throughout 2021.20 Despite the GDP’s volatility, its performance paints a somewhat dire picture for state revenue collections.21

Table 8.

State expenditures, which necessarily are driven by revenue collections, also affect GDP.22 Therefore, the confluence of this variety of data points highlights the complexity of predicting the future of state tax revenue collections. This complexity also reinforces the need to examine the crisis through many different lenses.23

COVID-19 Will Likely Cause Personal Income and Sales/Use Tax Revenue Declines to Contribute Significantly to Budget Deficits

Personal income and general sales/use taxes represent the two largest sources of tax revenue for states. On average and in the aggregate, states collect 38 percent of their taxes from individual income and 47 percent from general and selective sales tax combined (see Table 9).24

Some states rely more on income tax (for example, Oregon and Virginia), while others do not impose an income tax (for example, Florida, Texas, and Washington).25 In general, income tax has been more volatile than sales/use tax.26 This difference in volatility likely arises when consumers purchase some essential goods using funds from sources (for example, federal stimulus, savings)27 other than income even when their income has declined or been eliminated.28

Table 9.

While both personal income and sales/use tax collections have declined in the first months of COVID-19, personal income tax collections have declined more sharply (54.5 percent versus a 9.3 percent drop in sales and use tax).29 The fact that every state followed the federal government’s extension of the April 15 personal income tax deadline30 could explain a significant portion of this disparity. Most states’ fiscal years end June 30, which caused the personal income tax payments actually received in July to be reflected31 in FY21 revenue and not FY20.32

The Uncertainty Surrounding COVID-19 Makes It Difficult to Construct and Pass a Balanced Budget

The discussion above points out that the national unemployment rate, DJIA, and GDP serve to project the general direction of state revenue collections. That said, each of these indicators could experience a short-term swing that does not necessarily indicate its longer-term trend. Moreover, many of these factors affect each other, which further complicates state revenue analysis.33 Therefore, the interaction among these factors and, perhaps even more so, the presence of other confounding factors (for example, consumer confidence, political climate, government quarantine orders, civil unrest) make the enactment of a balanced state budget extremely difficult.34

As a result of COVID-19, “states are currently contending with revenue losses and increased spending demands.”35 In the face of balancing this tension, however, 42 states have enacted full-year budgets for FY21.36 Some have opted to extend the current fiscal year rather than enact a yearlong budget.37 Several (for example, Massachusetts,

Pennsylvania, and Vermont) have enacted temporary budgets or called special sessions to deal with the budget.38

A State May Use Many Options to Avoid or Manage a Potential Budget Deficit

Though states have many tools to manage potential budget shortfalls, they — unlike the federal government — are unable to print money, and most are required to balance their budgets annually.39 Further, states have limited authority to borrow, and state bond credit ratings are suffering.40 The following section discusses some options a state may employ to close a projected budget gap.41 (See Table 10.42)

Table 10.

Tap Rainy Day Funds

Every state contributes all or a portion of its surplus to a rainy day fund for use in a fiscal emergency.43 Following the Great Recession, states tapped rainy day funds to close 8.7 percent ($56.5 billion) of budget gaps.44 The Moody’s Stress Test, performed at the beginning of fiscal 2019, concluded that 22 states did not have sufficient rainy day fund balances to withstand an economic downturn of the level of the Great Recession.45 Therefore, a state may not be able to expect its rainy day fund to provide more than a small amount of relief to counter the magnitude of the revenue declines anticipated to result from COVID-19.

Use Federal Stimulus Funds

A state may also use federal stimulus funds to close budget gaps. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), signed into law March 27, allocates funds to fill revenue losses specifically caused by COVID-19.46 During the Great Recession, federal stimulus funds amounted to $156 billion, which accounted for 24 percent of state budget and gap-closing measures.47 The CARES Act and other federal legislation48 provide some federal assistance to states. Table 11 illustrates that the Tax Foundation and CBPP both project a similar amount of federal stimulus being available to states and agree that it is far from sufficient, in and of itself, to close anticipated budget gaps.49 

Table 11.

Table 12 illustrates that the amount of federal aid approved to date during COVID-19, as a percentage of GDP, is triple the amount approved during the Great Recession.50 It also illustrates that global stimulus is 18 percent of global GDP. These data points drive home the significance of COVID-19’s impact on state budgets.

Table 12.

Cut Spending

Since rainy day funds and federal aid are likely insufficient to close expected state budget gaps, states will likely need to use other tools. The other side of the fiscal equation, spending, provides another tool.

In the four years following the Great Recession, states collectively cut spending by $291 billion.51 This amount represented 45 percent of all state budget gap-closing measures and $3 for every $1 in new revenues.52 In fiscal 2012 “states relied almost exclusively on spending cuts to close their budget gaps,” and fiscal 2012 spending cuts amounted to almost as much as the total of 2008 through 2011.53 “Cuts along a similar trajectory would save $65 billion through FY 2021 and a further $116 billion in FY 2022.”54

Some states have announced plans to cut spending. For instance, Ohio Gov. Mike DeWine (R) has stated that the state will cut roughly $800 million in spending this year, mainly focused on education and Medicaid.55 In Georgia the leaders of the House and Senate budget committees and the Office of Planning and Budget sent a letter to Gov. Brian Kemp (R) proposing to cut spending by 14 percent ($3.3 billion) in FY21.56 New Jersey Gov. Phil Murphy (D) has proposed to reduce spending by roughly $1 billion in FY20.57

Issue Debt

A state may also borrow money from the federal government or issue public debt. The Coronavirus Stabilization Act, as a part of the CARES Act, allows governments to apply for loans from a pool of $454 billion (shared with small businesses), and the Municipal Liquidity Facility provides additional lending for states.58 Regardless of whether the creditor is the federal government or the public market, the issuance of debt generally provides only a timing benefit because the principal on the obligation needs to be repaid, and further, the bond interest is an additional expense (even though interest rates are at historic lows).59

Adopt an Amnesty Program

Nearly every state has used an amnesty program to raise cash (hundreds of millions of dollars in some instances)60 and is considering doing so again now. For example, Ohio and Nevada are both proposing amnesty programs.61 A tax amnesty program adopted in the throes of a COVID-19 economic downturn might be less successful than in the past because “substantial employment losses and severe economic dislocation for both individuals and businesses” caused by COVID-19 may cause taxpayers to retain cash in lieu of reaping amnesty benefits.62 That said, “an amnesty program may also push a number of taxpayers, if they are able, to accelerate the payment schedule of their tax debt, especially in instances where penalties and fees have grown disproportionately, relative to the original tax liability.”63 Regardless, many states may consider adopting amnesty programs to fill at least a small portion of budget gaps.64

Modify the Tax Code

A state may also consider using its tax code in a variety of ways to make up for revenue shortfalls. In general, a state may increase tax rates, modify or eliminate taxes, or create new taxes. Further, and as an overarching goal, a state may use the COVID-19 crisis as an opportunity, as challenging as it may be, to improve the overall structure of its tax system in a way that advances its tax and policy goals.

Increase Taxes

“No politician wants to lead with raising taxes, [and when] they get there, it’s because they’ve run out of other options.”65 Tax and fee increases accounted for only 15.5 percent of the total Great Recession budgetary gap-closing measures.66 Following the Great Depression, states adopted tax increases that accounted for 13.6 percent of all tax revenue by 1940.67

Sometimes a temporary tax or increase in tax may be, even if enacted with the best of intentions, a tool that does not ultimately accomplish its originally intended goal. Following the Great Recession, many states “temporarily” increased various tax rates, some of which expired, but others of which were extended, or even became permanent.68

A noteworthy example of a “temporary” tax that has become permanent is Pennsylvania’s Emergency Liquor Sales Tax Act, which was enacted in 193669 for the purpose of providing relief to victims of the Johnstown Flood. The act originally imposed tax at a rate of 10 percent (of the purchase price, including markup, handling charge, and federal tax), which was increased to 15 percent in 1951 and 18 percent in 1968. This “temporary” tax is still imposed today, more than eight decades later.70

Modify or Eliminate Taxes

A state can increase its collections by modifying its existing tax law. For instance, it may lower a tax rate and broaden the corresponding base to generate revenue.

California provides another example of a tax code modification designed to generate revenue: suspending the use of net operating losses. Gov. Gavin Newsom (D) signed a bill suspending the use of NOL deductions, which is expected to increase FY21 revenue by $1.8 billion.71 The governor and lawmakers estimate that the NOL suspension along with other measures will increase tax collections by $9 billion over three years.72 Interestingly, Pennsylvania has taken a contrary approach: H.B. 2420 proposes to allow a corporate taxpayer to use NOLs generated in 2020 indefinitely (instead of requiring them to be used within 20 years).

Enhance Collection and Audit Efforts

A state has several additional tools it may consider using to enhance collections. These measures include the intensification of enforcement of the relatively recent Wayfair decision73 and reallocation of resources to enhance enforcement generally.

COVID-19 stay-at-home orders have contributed to an increase in online sales. For instance, Walmart has reported that its U.S. e-commerce sales grew 74 percent in the first quarter of 2020.74 Wayfair allows states to require remote retailers and market facilitators to collect sales/use taxes on some online sales and has caused online sales tax collections to more than double year-over-year.75

Several states have recently initiated actions against online wine sellers alleging the underpayment of sales and excise taxes.76 Even before COVID-19, many states were stepping up enforcement efforts by sharing information with each other,77 pooling resources through the Multistate Tax Commission’s joint audit program,78 and hiring more auditors.79

COVID-19 has forced states to conduct tax audits remotely. At first glance, one may think that auditing remotely would lead to a diminution in audit quality. On the other hand, the time and expense saved by not traveling and coordinating on-site audits could be used to enhance audit quality and quantity. For instance, an auditor could spend time that had been used traveling to conduct more thorough audits remotely (and, perhaps, even more audits). More importantly, the travel expenses saved could be allocated to increase the use of artificial intelligence and data analytics,80 which would increase audit efficiency and quality.81 Therefore, COVID-19 could yield higher-quality and more efficient audits — a benefit to governments and taxpayers.

Finally, the “tax gap” causes the IRS to forgo $381 billion annually.82 While we are not aware of an estimate of the state tax gap, it is likely sizable.83 Further, query whether COVID-19, which has forced more sales to be paid by electronic means84 (and thus not with cash), could assist in reducing the state tax gap.

A state has many types of legitimate and reasonable enforcement tools available to use. Perhaps COVID-19 will cause states to re-envision the audit process in a way that benefits all stakeholders.

Create New Taxes

It would not be surprising for a state looking to increase revenue to consider creating new taxes.85 During the Great Depression, 22 states created sales taxes to increase revenues as a response to a decline of property taxes86 and by 1940 sales taxes accounted for 13.6 percent of all tax revenue.87

States are already considering several types of new tax options. Economists warn that new taxes may have unintended negative consequences,88 so enacting new taxes as a budget-closing tool should be debated thoroughly and used with caution — particularly when the only limitation on the types of new taxes is one’s imagination.89

Digital services. Several jurisdictions have considered creating new taxes on digital services.90 These include Maryland, New York, and the District of Columbia, but none has yet passed.

In Maryland, lawmakers proposed a tax on digital advertising that occurs within its borders.91 The tax would have applied to companies with over $1 million in gross advertising revenues stemming from Maryland and more than $100 million in global gross revenues. Gov. Larry Hogan (R) vetoed this bill.92 Similarly, lawmakers in New York are looking to tap tax revenue from “the data economy, which cities and states have failed to harness properly for decades.”93 In the District of Columbia, Council Chairman Phil Mendelson (D) proposed and withdrew a tax on digital services and advertising designed to increase revenue by $37 million per year.94

Each of these proposals contained significant legal hurdles (for example, the commerce clause, First Amendment, Internet Tax Freedom Act, and foreign commerce clause).95 If any of these proposals were to be enacted and challenged,96 as is likely the case, one wonders whether the tax would achieve its short-term goal of raising revenue. The complex legal,97 practical,98 and policy issues99 associated with these types of taxes make it all the more prudent for legislators and stakeholders to thoroughly and honestly debate all dimensions of such a proposal to determine whether it would achieve its desired result.

Streaming services. Both state and local jurisdictions have enacted new taxes on streaming and on-demand services. Many states that impose a general sales tax already tax video streaming services.100 The city of Evanston, Illinois, recently expanded the scope of its amusement tax ordinance, and not its sales tax, to apply to on-demand video, music, and gaming services.101 Evanston, along with neighboring Chicago, tax electronically provided entertainment in the same way they tax tickets for out-of-the-house events such as concerts, movies, and carnivals.102

The reason for taxing streaming services as amusements is simple: Amusements are sometimes taxed at a higher rate than sales tax.103 As with digital taxes, and although taxing these types of items may seem like an “easy fix,” caution should be taken before embarking down a road before the destination has been clearly identified.

Other types of new taxes. States have proposed other types of taxes as well. In California, lawmakers have proposed a $275-per-employee tax on businesses with at least 500 employees. If adopted, California would be the first state in the country with a statewide business head tax.104

In New York105 and New Jersey,106 legislatures have proposed a tax on stock trades, with New York’s bill estimated to raise an additional $13 billion per year.107

On three different occasions, the Seattle City Council has proposed alternative employee head count taxes.108 Council Bill 119810, which imposes an “average [tax of] $2,700 per job,” will become law despite Seattle Mayor Jenny Durkan’s “returning” it to City Council.109 Durkan returned the bill because she does not believe it would achieve the “goal [of making] our companies and their workers thrive in Seattle, pay taxes in Seattle, and that resulting revenue increases equity and benefits the people of Seattle.”110 The mayor also criticized the Council because its:

fast track approach to passing one of the largest taxes proposed in City history has led to serious concerns about not just the legality, size and scale of this tax, but its long-term impacts on the city and our small businesses. It is unclear what will be left of our economy when we emerge from COVID-19 next year.111 [Emphasis added.]

Durkan’s comments underscore the need to debate any tax changes, particularly where COVID-19 is creating an unprecedented amount of uncertainty for the future of the economy.112

The city of San Francisco has placed several tax measures on the ballot. To lessen the impact of COVID-19 on small businesses, the board of supervisors voted to defer enforcement of the vacant storefront tax until COVID-19 subsides.113 The board has also voted unanimously to put on the November 3 ballot a measure, referred to as the overpaid executive tax, that would impose a 0.1 percent tax on a CEO’s salary that exceeds 100 times the company’s average salary.114

It is not far from a knee-jerk reaction to pull out the “adopt a new tax” tool to close a budget shortfall. That said, tax increases frequently yield unintended consequences, such as discouraging businesses from remaining or moving to an area, or discouraging businesses and citizens investing into a state with higher taxes.115 This tax policy factor is all the more important to consider given the increased worker mobility following COVID-19.

Further, the fast pace at which the digital economy is evolving makes it more prudent to engage the appropriate stakeholders and fully flesh out the relevant facts and data.116 Proceeding cautiously (measuring twice but cutting once) would avoid contributing to the amount of uncertainty that already exists in the state tax world, where judges are forced to apply old laws to new ways of doing business. The current historic state budget deficits (and the federal budget deficit approaching $4 trillion)117 suggests that the spending side of the equation be examined thoroughly before moving to the revenue side.118

Conclusion

It is always prudent to look to the past for assistance in charting the course for the future. While the Prior Downturns provide a wide array of budget-closing tools to use, the complexity of — and confounding factors associated with — the available data make it difficult to analyze the efficacy of each option. The Prior Downturns, however, do instruct that it would be wise for a state to thoroughly and candidly debate:

  • The static and dynamic impacts of the measure.

  • The short- and long-term impacts of the measure.

  • How the measure interacts with and affects existing tax laws.

  • The likelihood, and impact, of a temporary measure becoming permanent.119

  • How the measure affects, and might be affected by, the state’s demographic and economic trends.120

  • How the measure affects both the revenue and spending sides of the equation.

The economic and tax data from the Prior Downturns and the last few months make it naïve to dispute the seriousness and complexity of the COVID-19-induced budget crisis. The Prior Downturns also suggest that the plethora of options available provides an opportunity to use the current crisis to strengthen a state’s budget and overall tax policy. It is respectfully suggested, however, that to emerge from this crisis stronger, a state will need to engage all stakeholders in honest, deep, and thoughtful debate.

The Prior Downturns also suggest that how a state reacts to the current state budget crisis will likely have a lasting impact on the state of that state’s future. Therefore, the Prior Downturns suggest that a planned route to a balanced budget include the following guideposts:

  • Identify all stakeholders and their respective interests.

  • Encourage each stakeholder to actively engage in respectful dialogue with the legislature.

  • Realize that no stakeholder will obtain all its desired goals and every stakeholder will likely concede a point it had previously considered nonnegotiable.

  • Share the goal of ultimately arriving at a solution that benefits the greater good of all and, in doing so, improves state tax and fiscal health.

It is hoped that this article will encourage honest and courageous dialogue for the purpose of improving state tax and fiscal policy. We will achieve this lofty and difficult goal together if we recognize that we:

need the honesty and courage to recognize and acknowledge that there are reasonable people of good will who do not share even some of our deepest, most cherished beliefs [and] to treat decent and honest people with whom we disagree — even on the most consequential questions — as partners in truth-seeking and fellow citizens of our republican order, not as enemies to be destroyed.121

By civilly engaging in honest and courageous dialogue, we will not allow this unprecedented state fiscal crisis to go to waste.

FOOTNOTES

1 See, e.g., Jeff Chapman, “States Contemplate Borrowing to Help Manage Pandemic’s Fiscal Impact,” Pew Charitable Trusts (June 9, 2020) (COVID-19 has caused “an unprecedented dive in tax revenue”).

2 See, e.g., Dylan George, Dan White, and Don Boyd, “COVID-19: How States Can Forecast the Impacts on State Budgets,” Pew Charitable Trusts, at 22 (May 13, 2020) (the COVID-19-induced “economic stress is unprecedented”); see alsoThe State-Budget Train Crash,” The Economist, June 18, 2020 (“Revenues have fallen so fast that some states do not even know by how much.”).

3 For instance, the amount of federal aid to individuals affects spending and saving decisions (see tables 6 and 7, infra), which in turn affect personal income tax and sales/use tax collections. The amount of federal aid available to states, which Congress may (or may not) change, also has a substantial impact on the amount of a state’s budget shortfall. Therefore, the complex array of relevant factors needs to be continually, thoughtfully, and thoroughly reexamined. See, e.g., Brookings Institution, “Hutchins Center Fiscal Impact Measure” (Aug. 4, 2020) (analyzing the interplay among governmental aid and spending (for example, employment and purchase of goods) and personal spending and consumption on GDP).

4 This paraphrases the quotation attributed to Sir Winston S. Churchill, “never let a good crisis go to waste.” Alternatively, how can we use these lemons to make limoncello?

5 See Center on Budget and Policy Priorities, “States Grappling With Hit to Tax Collections” (updated June 30, 2020); and National Conference of State Legislatures, “Coronavirus (COVID-19): Revised State Revenue Projections” (July 7, 2020).

6 Elizabeth McNichol and Michael Leachman, “States Continue to Face Large Shortfalls Due to COVID-19 Effects,” CBPP (updated July 7, 2020) (“The nation's worst economic shock since the 2007-2009 downturn, or the Great Recession, will derail state budget planning. State tax revenue will likely decline by about $160 billion from fiscal 2019 to fiscal 2021. (Most state fiscal years end June 30.) Compared with state budgeting expectations before the emergence of the pandemic, the projected cumulative two-year tax revenue decline is much larger at more than $200 billion.”).

7 Each year in Table 4 uses an economic indicator as it stood in the beginning of the calendar year; see Table 2 note c. The data in this table has been compiled from the following sources: Dow Jones: Yahoo Finance, Dow Jones Industrial Average (^DJI) (DJIA close for Mar. 1 of each year); GDP: Bureau of Economic Analysis, GDP by State (GDP data for the end of the first calendar quarter of each year); State Revenues: U.S. Census Bureau, Quarterly Summary of State and Local Tax Revenue (State tax collection data for the first quarter of each calendar year); Unemployment: U.S. Bureau of Labor Statistics.

8 U.S. Bureau of Labor Statistics, Civilian Unemployment Rate. Also note that the national unemployment rate reached 14.7 percent in April and declined to 13.3 percent in May and 11.1 percent for June. See also Jeff Cox, “Record Jobs Gain of 4.8 Million in June Smashes Expectations; Unemployment Rate Falls to 11.1%,” CNBC (July 2, 2020) (“The jobs growth marked a big leap from the 2.7 million in May, which was revised up by 190,000. The June total is easily the largest single-month gain in U.S. history.”).

9 Kimberly Amadeo, “Unemployment Rate by Year Since 1929 Compared to Inflation and GDP,” The Balance (updated July 2, 2020).

10 Matthew Fiedler and Wilson Powell III, “States Will Need More Fiscal Relief. Policymakers Should Make That Happen Automatically,” Brookings (Apr. 2, 2020).

11 Id. The $450 billion figure assumes that the unemployment rate would remain 10 percent above the pre-COVID-19 level for a full year. Putting aside the reasonableness of this assumption, it is not clear whether the Brookings extrapolation takes into account the impact on the unemployment rate of federal Pandemic Unemployment Assistance and other factors. Nonetheless, this extrapolation should be considered.

12 See also Table 4.

13 DJIA short-term volatility and the short amount of time that has elapsed since COVID-19 make the DJIA a less reliable indicator of state revenue collections. Dow Jones: Yahoo Finance, Dow Jones Industrial Average (^DJI) (used the Dow's closing numbers, from the first of January of each year).

14 Bureau of Economic Analysis, Personal Income and Its Disposition (June 26, 2020).

15 Id.

16 See American Enterprise Institute,“The Challenge of Central Banking in a Democratic Society” (Dec. 5, 1996) (Alan Greenspan speech given while accepting the institute’s Francis Boyer Award).

17 Walczak, supra Table 2. note a (“While most of us curtail some expenditures during an economic downturn, there is only so much we can — or are willing to — cut. Even those with no wage income continue to consume, supported by savings and governmental assistance, while those whose incomes decline are likely to reduce savings rates more drastically than consumption.”). It should also be noted that Tables 6 and 7 illustrate that in May/June 2020: Personal consumption rebounded significantly while federal stimulus payments declined and employee compensation began to rebound.

18 The Table 8 subtitle notes that it uses annualized and seasonally adjusted figures. Therefore, the quarter-to-quarter GDP change is adjusted seasonally and essentially multiplied by four. This calculation “assum[es] that the one-quarter change will continue for the next three quarters.” Chuck Jones, “Ignore GDP Plunging 33%. Pay Attention to the 9.5% Decline,” Forbes, July 31, 2020.

19 It is “important to realize that the 9.5% year over year decline is also the largest one officially recorded.” Id.

20 See CNBC Rapid Update (Aug. 4, 2020) (“Moody’s Analytics and CNBC calculate the new median quarterly GDP tracking forecast among a select group of Wall Street economists and how much the new data changes it,” and in so doing, forecast an average GDP increase of 16.7 percent in Q3 2020 and 9.7 percent in Q4 2020).

21 See Tracy Gordon, “State and Local Budgets and the Great Recession,” Brookings (Dec. 31, 2012).

22 Gordon, supra note 21 (“States and localities are also key economic players, comprising 12% of Gross Domestic Product (GDP) and employing 1 out of 7 workers — more than any other industry, including health care, retail sales, and manufacturing.”).

23 See id. (“A potential silver lining to the Great Recession and ensuing budget crises is that many state and local governments were forced to reexamine their tax systems and service priorities [, which] may be fruitful over the long term as all levels of government are forced to show a tighter connection between revenues raised and services delivered.”).

24 NCSL, “2020 Fiscal Briefs” (July 7, 2020); see also Dadayan, supra Table 2. note a (projecting $48 billion decline in FY21 personal income tax revenues in the aggregate for 27 states). See also Janelle Cammenga, “To What Extent Does Your State Rely on Sales Taxes?” Tax Foundation (May 20, 2020); and Cammenga, “To What Extent Does Your State Rely on Individual Income Taxes?” Tax Foundation (May 13, 2020).

25 Id.

27 See tables 6 and 7, supra.

28 Id. The recognition of capital losses and unemployment compensation (which is generally taxable) also contributes to the volatility of personal income tax revenue.

29 Amy Laskey et al., “Early US State Tax Receipts Show Beginnings of Declines,” Fitch Ratings (May 13, 2020) (“For the 20 reporting states that levy a PIT, the median decline in April 2020 from April 2019 was 54.5% [, whereas the] median [sales/use tax] decline in April was 9.3%.”).

30 Michael Semes, “State Taxpayers, Legislators Can Make Post-Virus World Better,” Bloomberg Law (Apr. 20, 2020).

31 Because states are effectively on the cash method of accounting, revenue received in July 2020 is recognized in FY21 even though it had originally been due and payable in April 2020.

32 Id. See also Moody’s Investor Service, supra Table 2. note a, at 3 (“States with low economic and revenue volatility are likely to suffer less severe impacts than those with narrow economies or high dependence on the most volatile taxes such as personal income, capital gains and sales taxes.”); see also Walczak, supra note 26.

33 For example, state employment (and therefore unemployment) is significant and affects GDP. See, e.g., Sage Belz and Louise Sheiner, “How Will the Coronavirus Affect State and Local Government Budgets?” Brookings (Mar. 23, 2020) (“Employment by state and local governments, for example, represents about 13% of total employment in the U.S., and state and local tax revenues make up about 9% of GDP.”).

34 See Pew Charitable Trusts, “COVID-19: How States Can Forecast the Impacts on State Budgets” (May 13, 2020).

35 Brian Spritz, “States Work to Finalize Fiscal 2021 Budgets,” National Association of State Budget Officers (June 26, 2020).

36 Id.; see also NCSL, “FY 2021 State Budget Status” (July 1, 2020).

37 For example, New Jersey adopted a law stating that “for purposes of the State’s general appropriation law, the State fiscal year scheduled to end on June 30, 2020, shall end on September 30, 2020, and the subsequent State fiscal year shall begin on October 1, 2020, and end on June 30, 2021,” and requiring that “the Governor present the revised budget message by August 25, 2020.” New Jersey Legislature, “COVID Fiscal Mitigation Act,” P.L. 2020, c.19 (approved Apr. 14, 2020).

38 See Spritz, supra note 35.

39 See Semes, supra note 30.

41 Gordon, supra note 21 (“Unlike the federal government, state and local governments are generally expected to balance their budgets. Indeed, many states are constitutionally prohibited from carrying a deficit forward into the next fiscal year. Thus, in addition to relying on enhanced federal funds, states and localities typically raise revenues, cut spending, or draw down reserves to close projected budget gaps.”).

42 McNichol, “Out of Balance: Cuts in Services Have Been States' Primary Response to Budget Gaps, Harming the Nation's Economy,” CBPP (Apr. 18, 2012).

43 Tax Policy Center, “What Are State Rainy Day Funds, and How Do They Work?” (updated May 2020).

44 McNichol, supra note 42.

45 This test measured fiscal shock in various scenarios, focusing on how a recession would affect state budgets without issuing long-term debt. Sarah Crane and Colin Seitz, “Stress-Testing States 2019,” Moody’s Analytics (Oct. 2019).

46 S. 3548, CARES Act (Mar. 19, 2020); see also U.S. Treasury Department, The CARES Act Works for All Americans.

47 McNichol, supra note 42.

48 The Stafford Act allows FEMA to help state and local governments during natural catastrophes.

49 Walczak, “Designing a State and Local Government Relief Package,” Tax Foundation (May 2020); McNichol and Leachman, supra note 6; McNichol, supra note 42; and Bill Dupor, “The Recovery Act of 2009 vs. FDR's New Deal: Which Was Bigger?” Federal Reserve Bank of St. Louis (Feb. 10, 2017).

50 For the stimulus amount during the Great Depression, see Dupor, id. For the stimulus amount during the Great Recession, see Daniel J. Wilson, “The COVID-19 Fiscal Multiplier: Lessons From the Great Recession,” Federal Reserve Bank of San Francisco (May 26, 2020); but see Dupor, id. (estimating the Great Recession stimulus at 5.7 percent of GDP). For the latest U.S. stimulus amount, see Niall McCarthy, “Global Coronavirus Stimulus Packages Compared,” Statista (May 11, 2020); but see Wilson, id. (estimating U.S. stimulus at 11.2 percent of GDP); see also Tommy Wilkes and Ritvik Carvalho, “Graphic - $15 Trillion and Counting: Global Stimulus So Far,” NASDAQ (May 11, 2020).

51 McNichol, supra note 42.

52 Id.

53 Id.

54 Walczak, supra note 49.

55 Andrew Tobias, “Ohio Gov. Mike DeWine Announces $775m in State Budget Cuts to Education, Medicaid and More,” Cleveland.com (updated May 7, 2020). It is beyond the scope of this article to identify or discuss the merits of the various areas in which spending may be cut.

56 James Salzer, “Kemp: Georgia Tax Collections — And Spending — Will Drop 11% in Coming Year,” Atlanta Journal Constitution, June 3, 2020.

57 John Reitmeyer, “As COVID-19 Heats Up, Governor Puts $1B of Planned Spending in Deep Freeze,” NJ Spotlight (Mar. 24, 2020).

59 Fitch Ratings, “Fitch Affirms Delaware’s IDR at ‘AAA’ and Rates $33MM GO Bonds ‘AAA’; Outlook Stable” (June 4, 2020); see also Chapman, supra note 1 (“Borrowing can provide immediate cash and buy time to make those decisions but will have to be repaid with interest.”).

60 Federation of Tax Administrators, “State Tax Amnesty Programs” (Dec. 2017).

61 Ohio Legislative Service Commission, Fiscal Note for H.B. 609 (as passed by the House), at 3 (Ohio’s previous amnesty programs yielded “$35.2 million in FY 2002, $58.9 million in FY 2006 . . . $65.7 million in FY 2012,” and $14.3 million in 2018). Nevada COVID-19 Fiscal Report (July 6, 2020).

62 Fiscal Note for H.B. 609, id.

63 Id.

64 Amnesty programs are projected to close a relatively small portion of anticipated budget gaps (e.g., the Ohio and Nevada amnesty programs are projected to yield 0.4 percent (FY21) and 2.5 percent (FY20) of budget gaps, respectively). A voluntary disclosure program is another way for a state to collect past-due taxes. The Multistate Tax Commission Voluntary Disclosure Program raised $21.6 million in FY20. See Tripp Baltz, “Multistate Voluntary Tax Disclosure Program Nets $21.6 Million,” Bloomberg Law, July 28, 2020.

65 Tony Romm, “Governments Eye New Taxes on Cigarettes, Homes and Tech Giants to Pay for Big Budget Shortfalls Related to the Coronavirus,” The Washington Post, June 26, 2020 (quoting Mark Mazur, director of the Tax Policy Center).

66 McNichol, supra note 42; see also Andrew Wilford, “Taxpayers Beware: Economic Contractions Often Lead to State Budget Shenanigans,” National Taxpayer Union Foundation (Apr. 7, 2020) (In the aftermath of the Great Recession, “33 states approved tax changes that increased revenues. Twenty states enacted various tax changes during 2009 that increased revenues by at least a percentage point over the previous year. Ten states approved tax changes that increased revenues by at least 5%.”).

67 Ronald Snell, “State Finance in the Great Depression, National Conference of State Legislators,” NCSL, at 5-6 (Mar. 2009). It is interesting to note that in the seven years following the 1933 repeal of prohibition, state taxes on alcohol accounted for 60 percent of all general sales tax collections. Id. For various reasons beyond the scope of this article, so-called sin taxes (taxes on alcohol, tobacco, gambling, recreational marijuana, and so forth) “make up only a small part of overall state budgets and have limited revenue potential for governments.” Dadayan, “Are States Betting on Sin? The Murky Future of State Taxation,” Tax Policy Center, at 51 (Oct. 2019).

68 See, e.g., Josh Goodman,When Is a Temporary Tax Increase Really Temporary?” Pew Charitable Trusts (Feb. 27, 2012); and Norton Francis and Brian David Moore, “Temporary Taxes, States’ Responses to the Great Recession,” Urban Institute (Nov. 2014).

69 Act of June 9, 1936 (Special Session, P.L. 13) 42 P.S. section 794.

70 Pennsylvania Department of Revenue, The Tax Compendium (Feb. 2019).

71 A.B. No. 85. This law also limits the use of specific types of tax credits, which is expected to raise an additional $2 billion. Note that the suspension of NOLs only defers, and does not eliminate, the payment of taxes (assuming that the taxpayer will have sufficient taxable income in years beyond the suspension against which the NOL would be offset).

72 Id.

73 South Dakota v. Wayfair Inc., 585 U.S. ___ (2018).

74 Baltz and Michael J. Bologna, “COVID Accelerates a Wave of ‘Wayfair’ Tax Revenue,”Bloomberg Law, June 16, 2020.

75 Id.

76 See Ohio v. Wine.com, U.S. Dist. Ct. (So. Dist. Oh., Case No. 2:20-cv-3430); see also, Alex Ebert, “Out-of-State Wine Retailers Pursued by Ohio for Tax Dodges,” Bloomberg Law, July 8, 2020.

77 See Federation of Tax Administrators, FTA Regions.

78 The MTC Joint Audit Program proposed assessments of more than $180 million from corporate taxpayers in FY20. See MTC, Audit Committee Meeting (July 28, 2020).

79 See, e.g., Gail Cole, “From Data Analysis to Whistleblowers: How States Uncover Noncompliant Sellers,” Avalara, Mar. 5, 2020.

80 See, e.g., Comptroller of Maryland, “News Release: Comptroller’s New Tax Processing System on Track to Launch July 6,” (June 8, 2020) (“With the onset of the COVID-19 pandemic, the [tax processing system] team quickly transitioned to working remotely while preparing a major system overhaul.”).

81 Id. (Maryland comptroller implements new tax processing system designed for “improved fraud detection and prevention programs . . . and maximized audit, collection, reporting and estimating functionality”).

82 IRS, The Tax Gap (The tax gap is the difference between total taxes owed and taxes paid on time. In the most recent report conducted by the IRS in 2019, covering 2011-2013, the average annual gross tax gap was $441 billion. Of this amount, the IRS recovered $60 billion through late payments and enforcement activities, leaving an average of $381 billion per year uncollected. Of the uncollected amount, $352 billion was from underreporting, $245 billion of which was from individual income tax). See also Tax Policy Center, “What Is the Tax Gap?” (updated May 2020).

83 See, e.g., Minnesota DOR, Sales Tax Gap Study (estimating that the Minnesota annual tax gap for sales tax was around $450 million in 2000, and projected to grow to be more than $500 million in 2002 and $700 million in 2007). Minnesota is projecting a $2.4 billion budget deficit for FY20 and FY21. Therefore, the Minnesota sales tax gap of $868 billion (assuming no growth since 2007 and converting the 2007 estimate of a $700 million sales tax gap into 2020 dollars) is more than a third of its current biennium projected deficit. Further, this estimate does not take into account any tax gap associated with personal income tax or other taxes. Finally, unless Minnesota is a tax gap outlier, its figures suggest that the tax gap is likely a sizable portion of any state budget shortfall.

85 See, e.g., Eric Adams and Andrew Gounardes, “A Tax on Data Could Fix New York’s Budget,” The Wall Street Journal, June 1, 2020 (“Because working New Yorkers face enough taxes, the task is to find new revenue sources.” (Emphasis added.)).

86 Snell, supra note 67.

87 Id. at 5-6.

88 See, e.g., Walczak, “New York Lawmakers Float New Data Tax Proposal,” Tax Foundation (June 2, 2020).

89 Recall the lyrics of the Beatles song “Taxman”: “If you drive a car, I’ll tax the street; If you try to sit, I’ll tax your seat; If you get too cold, I’ll tax the heat; If you take a walk, I’ll tax your feet.”

90 See, e.g., Maryland S.B. 2 and FY 2021 Local Budget Act of 2020 (July 7, 2020); and New York State Senate, A. 10706. See also Adams and Gounardes, supra note 85 (“The first place to look [for new tax revenues] is the data economy, which cities and states have failed to harness properly for decades. Every day, tech companies — from big players like Amazon, Apple, Facebook and Google to smaller startups and online merchants — capitalize on personal consumer data for advertising, marketing and product development.”).

91 Maryland S.B. 2.

92 See Hogan Veto Letter (May 7, 2020).

93 New York State Senate, A. 10706.

94 See Office of Chairman Mendelson, “Chairman Mendelson Statement on His Proposed Budget Changes to FY 2021 Budget” (July 22, 2020) (“It is clear that the Council has drifted toward ad hoc tax proposals focused on spending, without thoughtfully considering the implications of the taxes themselves — or the need for better spending.”).

96 An astute taxpayer would likely not pay the legally questionable tax and seek declaratory relief or wait to be assessed and then challenge that assessment. In either case, the state (or district) would not receive (if ever) the revenue for several years while the litigation was pending.

97 See, e.g., Walczak, supra note 95.

98 E.g., who is subject to the tax, what exactly is subject to tax, how is the tax sourced, and is the tax layered?

99 E.g., is it prudent or appropriate to target a particular industry or sector of the economy? On whose shoulders would the ultimate burden of that tax fall?

100 Richard C. Auxier, “Chicago’s Streaming Tax Is a Bad Tax but It’s Not a ‘Netflix Tax,’” Tax Policy Center (June 11, 2019).

102 Bologna, “‘Netflix Tax’ Could Spread From Chicago as Cities Crave Revenue,” Bloomberg Law, June 19, 2020; see also Bologna, “States Challenge Netflix and Hulu Over Unpaid Utility Fees,” Bloomberg Law, Aug. 20, 2020.

103 Auxier, supra note 100.

104 Walczak, “California Considers Business Head Tax Plan That Seattle Repealed,” Tax Foundation (May 28, 2020).

105 New York Assembly Bill 7791B.

106 State of New Jersey 219th Legislature, Assembly, No. 4402 (introduced July 16, 2020).

107 Braun, “New York Sees Push to Tax Stock Trades With Revenue in Free Fall,” Bloomberg Law, July 20, 2020.

108 Office of the Seattle City Clerk, C.B. 119810; see also Walczak, “Seattle Officials Return With New Proposal for Taxing Employment,” Tax Foundation (June 16, 2020) (“The latest bill represents a third effort to tax employment in the city, the first effort was enacted but repealed and the second effort did not have the support of Mayor Durkan nor did it have enough votes.”).

109 The bill will become law without the mayor’s approval because the Seattle City Council had a sufficient number of votes to override a veto.

110 See Mayor Jenny Durkan’s letter to the Seattle City Clerk (July 17, 2020).

111 Id.

112 Id. “Right now, the very employers this bill seeks to tax are the ones that continue to employ workers and pay the majority of taxes to our city.”

115 Tax said, new taxes, such as carbon taxes, may be used to advance changing policy goals. See, e.g., Accountancy Age, Q&A: EY’s Global Vice Chair of Tax on a Changing Function” (May 27, 2020); and Kyle Pomerleau and Elke Alsen, “Carbon Tax and Revenue Recycling: Revenue, Economic, and Distributional Implications,” Tax Foundation (Nov. 6, 2019).

116 Telecommuting raises additional issues and concerns for nexus, apportionment, and employee withholding. See, e.g., city of Philadelphia DOR, “Business Income & Receipts Tax (BIRT), Net Profits Tax (NPT) and Nexus and Apportionment Policies Due to the COVID-19 Pandemic” (Apr. 22, 2020); see also Philadelphia DOR, “Wage Tax Policy Guidance For Non-Resident Employees” (May 4, 2020).

118 Large deficits, whether at the state or federal level, also make prescient the words of President Ronald Reagan: “We don’t have a trillion-dollar debt because we haven’t taxed enough [or created enough new taxes]; we have a trillion-dollar debt because we spend too much.”

119 The “Johnstown Flood Tax” was enacted in 1936 to help the victims of the flood. Today, the tax is set at 18 percent and is applied to liquor purchased in state-run stores. See Jon Delano, “70 Years Later, Pennsylvanians Still Paying Johnstown Flood Tax,” CBS Pittsburgh, June 6, 2011. The Great Depression saw states introduce new taxes (like the general sales tax) and expand on others (like taxes on alcohol and tobacco). See Snell, supra note 67.

120 For example: Does Florida’s lack of an income tax affect the average age of its population? Might imposing tax on digital goods cause the sector of the population that uses them more heavily to avoid or flee from the state?

121 Robert P. George and Cornel West, “To Unite the Country, We Need Honesty and Courage,” The Boston Globe, July 15, 2020; cf. Dan R. Bucks et al., “Pragmatism Not ‘Punishment’: Why Some Should Pay More in a COVID-19 World,” Tax Notes State, July 27, 2020, p. 379 (because discussing COVID-19 tax policy “ideas . . . is a game-changer [that] will make a difference,” the author extends to that article’s authors an invitation to initiate that type of honest and courageous discussion).

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