States Being Taxing Services

For decades, American political and economic leaders from both parties have sounded the alarm on the tide of red ink rising in reports on the federal governments fiscal health.

Cash-strapped states across the country are looking to their cash-strapped residents for even more money – by taxing services they buy, not just goods. Everything from car repairs and dry cleaning to personal training and party clowns are being targeted for new taxes.

Personal Trainer Kelly Garner is outraged, telling ABC News, "another tax is not what we need right now." State budget officers disagree.

VIDEO: States Go Tax Crazy
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Trouble Across the Country

The new taxes are hitting citizens of states across the country. Hawaii, New Mexico, Washington, South Dakota and Delaware already tax a number of services. Other states are quickly following their lead.

Nebraska lawmakers are considering new taxes on everything from shoe shines to farm equipment repairs. In Kentucky, the state is considering taking a cut of lawn services and limousine rides. Maine could decide to tax the fun out of performers like clowns and jugglers. And, in Pennsylvania, accountants and even plumbers could have their labor visited by the tax man for the first time ever.

Consumers do two-thirds of their spending on services, and with massive budget deficits, state governments say they can't afford not to consider another source of revenue.

Lost jobs and sagging property values have taken a drastic toll on state coffers.

Sujit Canagaretna, of the Council of State Governments, said that only two states, Montana and North Dakota, are operating in the black. The other 48 are seriously dire need of money. "The environment we are in currently has not been experienced since the Great Depression. Sates are floundering in red ink."

Unhappy Taxpayers

In hard-hit Michigan, the news cut deep. Barber Jeff Wicklander worries about the state's plan to tap his customers for more money – an added tax on shaves and haircuts. "It would definitely shrink revenue," he says "it's going to affect the number of people who come in the door."

Customer Frederick Yankee told ABC News, "It's getting to the point where every time you turn around they turn and ask you for more money, more money, more money. It's like I've only got so much and you're trying to take everything out of my pocket."

The collapse of the auto industry, lost jobs and plummeting property values plunged Michigan deep into debt -- with a deficit of $1.7 billion. The state tried taxing services in 2007, but residents here got so angry, the law was repealed almost immediately. They are angry this time too.

"Adding a new tax burden to our citizens and our small businesses at a time when the state is hurting so badly doesn't make a lot of sense," says Rob Fowler of the Small Business Association of Michigan, "I would say it's bad for business, it's bad for consumers, and it's bad for Michigan."

In the past, raising taxes was considered political suicide. Now, more lawmakers seem willing to face the wrath of taxpayers in order to balance the budget.

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