State Rundown 3/30: Several Major Tax Debates Will March on into April

This week, after the recent teacher strike in West Virginia, teacher pay crises brought on by years of irresponsible tax cuts also made headlines in Arizona and Oklahoma. Maine and New York lawmakers continue to hash out how they will respond to the federal tax bill. And their counterparts in Missouri and Nebraska attempt to push forward their tax cutting agendas.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• As part of efforts to avert an impending teacher strike, Oklahoma lawmakers agreed on a plan to increase taxes to fund education. Gov. Mary Fallin is expected to sign the bill into law. House bill 1010 includes the following increases: $1/pack cigarette tax, $0.03 on gasoline, $0.06 on diesel, and an increase in the state’s oil and gas production tax from 2 percent to 7 percent in two steps. Lawmakers also passed bills to cap the state’s itemized deductions at $17,000 per taxpayer and increase teacher pay.
• Arizona’s Ducey signed into law a bill extending the state’s 0.6 percent sales tax increase until 2041. But, even with this step, no new funding will go to schools. Teachers are rallying for a pay increase and education groups continue to push for more comprehensive reform, including a demand that tax cuts come to a halt.
• The Idaho Senate signed off on increasing the state’s newly passed Child Tax Credit. It now waits for Gov. Butch Otter’s signature.
• Washington Inslee signed the state’s supplemental budget into law, which includes a billion dollar funding increase for public education to comply with court requirements to adequately fund public education, as well as a temporary property cut.
• Missouri Senate lawmakers advanced their version of a tax cut proposal, described as “Kansas on steroids,” that will slash personal and corporate income taxes and blow a several-hundred-million-dollar hole in state funding for education and other priorities if enacted.

More State Responses to Federal Tax-Cut Bill:

• The debate over federal conformity heats up in Maine. Lawmakers are considering whether to align the state’s income taxes with the Trump-GOP tax law, resulting in a $111 million state tax cut, or to decouple and invest in vital public services. The Maine Center for Economic Policy weighs in on the impact of Gov. Paul LePage’s tax plan.
• New York‘s budget is due this Sunday. But the state’s response to federal conformity is still under consideration. State budget groups are encouraging lawmakers to take their time before enacting any major changes, which under the Governor’s plan would include a new voluntary payroll tax and the creation of two charitable funds intended to help upper-income taxpayers circumvent the new federal cap on state tax deductions. As negotiations continue, New York City also anxiously awaits details of the state’s budget plan.

In Other News:

• Efforts to enact unfunded tax cuts in Nebraska are stalled for the time being as Gov. Pete Ricketts and allies attempt to gain enough support to overcome a likely filibuster of the reckless bill.
• It’s almost April, but proposals for tax reform are just getting started in Kentucky. Lawmakers have been negotiating taxes, pensions and the budget behind closed doors.
• A California proposal to change corporate tax rates based on the ratio of compensation between their highest paid and median employee salaries has been referred to committee but is awaiting a hearing.
• Colorado pot revenues are on the rise despite new competition from legal retail products in other jurisdictions. Localities like Denver are putting some of the new revenues towards road repair.
• A new report from the Illinois Auditor General shows that the state’s deficit grew 52 percent to $14.6 billion during fiscal 2017. How will Illinois dig itself out of this fiscal hole? A broad coalition is calling for support of a graduated personal income tax.
• Indiana‘s governor just signed into law a sales tax exemption for cloud-based software transactions.
• A new report from the Kansas Center on Economic Growth refutes the notion that a “rural recession” instead of poor tax policy was the primary driver behind the state’s financial crisis. Also happening in Kansas, a bill to require collecting and remitting online sales taxes has been delayed while a bill to lower the sales tax on groceries in 2020 passed a Senate committee.

What We’re Reading…

• A New York Times article featuring ITEP Research Director Carl Davis investigates the fact that Amazon, despite now collecting state sales taxes on its direct sales, sometimes does not have to collect sales taxes levied by local governments.
• Professor Ed Kleinbard of USC has a new paper on the problems with how tax policies are often evaluated, arguing for a broader lens that views taxation not only as an exercise in applied economics, but also applied moral philosophy.
• The Center on Budget and Policy Priorities (CBPP) is out with a new report explaining how states should respond to federal tax cuts for pass-through entities.
• Also from CBPP, an explanation of how tax cuts have played into the Arizona and Oklahoma teacher pay crises.
• The Hawaii Budget and Policy Center pointed out problems with the state’s analysis of the impact that recent federal tax changes will have on Hawaii residents at different income levels, showing that the lowest-income households will actually see little benefit under the Trump-GOP tax plan.

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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