State Rundown 3/8: Much Ado About Consumption Taxes

This week brings more news of states considering reforms to their consumption taxes, on everything from gasoline in South Carolina and Tennessee, to marijuana in Pennsylvania, to groceries in Idaho and Utah, and to practically everything in West Virginia. Meanwhile, the fiscal fallout of Kansas’s failed ‘tax experiment’ has new consequences as the state’s Supreme Court found the state is unconstitutionally underfunding public schools. Make sure to check out our “What We’re Reading” section, which is chock full this week with recent research on Earned Income Tax Credits, state and local responses to budget woes and federal uncertainty, and more.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• Legislative attempts in West Virginia to restructure the state’s tax system, replacing the state’s personal income, corporate income, and sales and use taxes with an 8 percent general consumption tax, are expected to cost at least $610 million a year as currently structured. The state’s fiscal note warns of potential unintended consequences of the tax shift, such as increased taxes on business inputs and consumers evading the higher tax rate on goods and services. That being said, the state is looking for ways to move forward with income tax repeal.
• Kansas lawmakers return from recess with the added pressure to enact substantive tax reform due to a state Supreme Court ruling that the state is not adequately investing in public education. The state has until June 30 to present a satisfactory plan. As lawmakers continue to work on tax reform, the Senate has clearly indicated that Gov. Brownback’s proposals will not be in the mix.
• Tennessee Gov. Bill Haslam’s “IMPROVE Act,” which combined a needed gas tax update to generate revenue for roads with an unneeded package of tax cuts, may be falling apart. A subcommittee this week replaced the gas tax component of the bill with a sales tax redirection that essentially raids the state’s general fund budget for the money needed for roads, while also cutting taxes that go into the general fund. Gov. Haslam is still pushing to get the gas tax provision of the bill restored. Polls show public opinion on the plan is mixed, though more informed respondents are more supportive.
• South Carolina is setting a better example for what to do when a gas tax falls far behind the times and is no longer bringing in adequate revenue for the state’s infrastructure costs, as the House voted this week to approve raising the rate by 10 cents over five years without tacking on other tax cuts or siphoning off funding from other priorities. The Senate may begin debate on the bill next week, though a filibuster attempt is expected.
• Pennsylvania‘s auditor general suggests the state consider regulating and taxing marijuana to close its budget gap. By doing so, the state could bring in $200 million a year.
• West Virginia‘s Gov. Jim Justice weighs a state tax on sugary sodas as companies in Pennsylvania (namely, Pepsi) fight against Philadelphia’s recent tax increase.
• Lawmakers in Idaho are hoping to get a hearing on a bill that would eliminate the sales tax on food along with the state’s grocery tax credit. Efforts to do the reverse in Utah—reinstate the sales tax on food and enact offsetting tax credits for low-income households—will have to wait for another legislative session.
• It’s potentially a big season for sales and excise tax policy in New Mexico. Amazon will start collecting sales taxes in April, the Senate passed a bill that would raise the gas tax for the first time in 20 years, and lawmakers are considering a $1.50 per pack increase on cigarettes to fund education.
• More than three-fourths of Florida residents polled are against a proposed corporate tax cut, preferring to keep the tax and devote the revenue to education. Of course, that didn’t stop Gov. Scott from proposing more tax cuts in his annual address.
• Despite the state’s $1.7 billion projected deficit, democratic lawmakers in Connecticut are lining up in support of a full exemption of social security income. The plan is expected to cost $45 million a year.

Governors’ State of the State Addresses

• Governor Scott of Florida gave his address on Tuesday. Most governors have now given their addresses for the year. The next scheduled address is Gov. Kasich of Ohio on April 4, with Gov. Carney of Delaware and Gov. Cooper of North Carolina‘s speech dates still to be announced.

What We’re Reading…

• A new study from the Carsey School of Public Policy at the University of New Hampshire found that state EITCs are particularly effective tools for reducing poverty, especially among children and households of color.
• Federal Community Development block grants and other housing assistance to state and local jurisdictions are likely on the chopping block, one of many reasons state and local policymakers should keep a close eye on federal developments. The U.S. Conference of Mayors expressed their concern about these and other potential cuts last week.
• NPR lists Iowa, Louisiana, Missouri, and New Mexico as some of the many states cutting higher education funding in response to revenue problems.
• On top of the other fiscal troubles for states and localities mentioned above, many have also already been deferring maintenance on infrastructure for years in response to budget issues in what may amount to a “fiscal time bomb” when the repairs cannot wait any longer.
• The Louisiana Budget Project has released a new blueprint for state tax reform including ITEP analysis, highlighting four key policy recommendations the legislature should enact to end budgetary shortfalls and to reinvest in the state’s prosperity.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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