State Rundown 12/17: New and Old State Tax Debates Await in 2021

Our last Rundown of 2020 includes news of yet another misguided proposal to eliminate a state income tax, this time in Arkansas. Florida and Missouri, on the other hand, are looking to modernize their tax codes by becoming the last two states to enforce their own sales taxes on online retailers. Leaders in Maryland and Oregon, meanwhile, are working to decouple the state from unnecessary and regressive tax cuts included in the federal CARES Act. And Missouri and Nevada lawmakers both got updated estimates of the revenue shortfalls they will need to resolve when they convene in 2021. The Rundown will be signing off for the rest of the year and will return to bring you the latest in state fiscal debates in January!

Major State Tax Proposals and Developments

• ARKANSAS Lt. Gov. Tim Griffin proposed completely eliminating the state’s personal income tax over several years, despite the fact that the tax accounts for nearly 30 percent of state tax collections. At the same time, Gov. Asa Hutchinson proposed doubling the state’s Rainy Day Fund by mid-2023 which would require additional revenue. As a reminder from the last Rundown, MISSISSIPPI and WEST VIRGINIA are also considering eliminating the personal income tax. – KAMOLIKA DAS

State Roundup

• ALASKA Gov. Mike Dunleavy recently proposed direct cash payments to residents from the state’s Permanent Fund and an infrastructure plan intended to create jobs. Despite the state’s gaping revenue shortfall and dwindling reserves, the Dunleavy administration skirted discussions of revenue raising and instead reconfirmed his aim to pursue a constitutional amendment requiring a vote of the people to institute new taxes.
• FLORIDA lawmakers are considering a bill that would require online sellers to collect and remit taxes over a certain threshold. Florida and MISSOURI are the only remaining states that impose a statewide sales tax but do not require online retailers to collect.
• Faced with the economic effects of the pandemic, HAWAII Gov. David Ige announced plans to furlough more than 400,000 state workers and cut worker pay by 9.2 percent. Teacher unions and advocates for robust public services push back and make the case for additional revenue.
• IOWA Gov. Kim Reynolds wants to bring back her plan to shift taxes from upper-income households to lower- and middle-income families by raising the sales tax and slashing the income tax, but many lawmakers oppose either the sales tax increase itself or the regressive shift.
• A gas tax increase is likely to be up for discussion in KENTUCKY during the state’s upcoming session. The Kentucky Center for Economic Policy released a report this week with insights and recommendations on a robust economic recovery.
• MARYLAND lawmakers could consider a bill that will decouple the state from costly CARES Act tax breaks that would reduce revenues by $110 million in fiscal years 2020 and 2021 and disproportionately benefit wealthy taxpayers. In other news, Gov. Larry Hogan signed several business relief measures including unemployment tax suspension and loan forgiveness for emergency loans made early in the pandemic.
• MISSOURI lawmakers, facing a $418 million outright decline in revenue, will try again to fix the hole in their tax code that allows online retailers to not collect sales taxes. They may also try again to update the state’s gas tax, which is needed for infrastructure funding but has been defeated repeatedly.
• NEVADA economic forecasters foresee a very difficult biennium coming up for the state. The updated forecast shows a $400 million decline in revenue from the current biennium to the upcoming biennium, a figure which does not account for increases in the cost of providing the current level of services to a growing population, nor for the fact that school advocates were already trying to raise $1.4 billion for the state’s underfunded education system.
• A reported deal to give out $11.5 billion in corporate tax subsidies in NEW JERSEY is being described by experts and advocates as “a slap in the face to New Jersey taxpayers.” The deal comes as a surprise because the state has well-known revenue needs, a troubled history with similar subsidies, and a recently enacted millionaires tax and Earned Income Tax Credit expansion that had indicated lawmakers were prioritizing equitable tax policy and shared priorities rather than expensive and ineffective business tax subsidies.
• The editorial board of the Charlotte Observer point out the shortfalls of NORTH CAROLINA’s “extra credits grants,” or $335 checks to families with school-aged children.
• OREGON Gov. Kate Brown is calling legislators back into session next week to settle a few outstanding items, including possibly decoupling from tax breaks for high-income households included in the federal CARES Act.
• RHODE ISLAND lawmakers passed a “skinny” budget out of the House this week. The budget focuses on spending, specifically of federal funds from the CARES Act, and leaves many major policy decisions—such as legalizing cannabis, changes to the car tax phaseout, and a proposed tax increase on the wealthy—to the upcoming session in January.
• The SOUTH CAROLINA House prefiled a bill for the 2021 session that would move from a graduated income tax to a lower, flat income tax of 4.85 percent in 2022 and eventually phase down to 4.5 percent over five years.
• TEXAS released a new tax expenditure report that details the state’s multiple tax exemptions, credits, and exclusions that collectively total $58.6 billion each year.
• VIRGINIA Gov. Ralph Northam proposed a two-year state budget yesterday that includes funding for coronavirus vaccines, K-12 education virtual support, and increasing the state’s rainy-day fund.

What We’re Reading

• State revenue departments continue to paint a rosy picture of increased tax collections. But according to the Tax Policy Center, many of these reports highlight comparisons to expected tax collections rather than measuring actual revenue losses, which are deeper and more widespread.
• A study out of the London School of Economics reconfirms a well-known but important research finding: tax cuts for rich households do not trickle down to benefit lower-income families or economies more broadly.
• Connecticut Voices for Children has released a valuable new report, “Advancing Economic Justice Through Tax Reform,” exploring ways the state’s regressive tax system contributes to inequities and policy options that can improve on that picture.
• Nebraska’s OpenSky Policy Institute has put out a set of recommendations for improving racial and ethnic equity in the state, gleaned largely from a series of presentations on these issues by state and national experts.

---

---