State Rundown 2/11: Legalizing and Taxing Cannabis Becoming Increasingly Mainstream

This week, the governors of New Hampshire and West Virginia proposed to eliminate their states’ most progressive revenue sources and shift taxes even more heavily onto the middle- and low-income families who already pay the highest rates in both states. It was also a big week for proponents of legalizing recreational cannabis, as that movement made progress in Hawaii, Virginia, and Wisconsin.

Governors’ Annual Addresses and State of State Speeches

• In his State of the State address, WEST VIRGINIA’s Gov. Jim Justice echoed his desire to eliminate the state’s personal income tax. His proposal lacked details but would broadly phase-out the tax that funds more than 40 percent of the state budget by starting with a one-third reduction for high-income earners and a one-half reduction for everyone else. To help fund this massive tax shift, he would increase the sales tax rate, add sales tax on cigarettes and soda, tax professional services, enact a tiered system on oil, gas and coal, and consider some vague notion of a wealth tax.
• NEW HAMPSHIRE’s Gov. Christopher Sununu delivered his Budget address today. He was expected to propose “tens of millions” of dollars in tax cuts, including a cut to the rooms and meals tax and a cut to the Business Enterprise Tax. He is also expected to call for the elimination of the state’s interest and dividends tax over the next 5 years.
• Other recent speeches with less tax content included those by Gov. Andy Beshear of KENTUCKY, Gov. Gina Raimondo of RHODE ISLAND, and Gov. Bill Lee of TENNESSEE.
• A full list of scheduled addresses is available here.

Budget and Covid-19 Response News

• CONNECTICUT lawmakers are increasing pressure on Gov. Ned Lamont to support tax increases on rich households in order to fund short-term Covid-19-related needs, long-term underfunding of major services, and tax reductions for middle- and low-income families. This pressure is likely to continue now that Lamont’s budget plan is out, which focuses instead on short-term federal dollars and reserves and kicks the can down the road on those bigger issues.
• MARYLAND Gov. Larry Hogan’s $1.5 billion pandemic recovery bill, including boosts to families who qualify for the state EITC, has sailed through the state legislature.
• Gov. Roy Cooper of NORTH CAROLINA released his COVID relief budget, which includes bonuses for teachers and college staff.
• WISCONSIN Gov. Tony Evers, in his 2021-2023 biennial budget plan, has proposed legalizing and taxing marijuana in a similar way the state treats alcohol.

Other Major State Tax Proposals and Developments

• An ARIZONA Maricopa County Superior Court Judge rejected a challenge to the recently enacted ballot measure that imposed a 3.5 percent surcharge on wealthy earners, after determining that the people were equal with the legislature and the claim that only elected officials were authorized to raise taxes had no merit. – MARCO GUZMAN
• After denouncing a Republican-backed tax cut plan, KANSAS Gov. Laura Kelly offered an alternative plan that would focus relief on families to be paid for by taxing digital products like online music, movies, and streaming services. – MARCO GUZMAN

State Roundup

• A GEORIGA bill that would have examined new or existing tax incentives in the state was shelved after the Senate Finance Committee refused to vote on it.
• Lawmakers in HAWAII, still faced with a massive budget shortfall, are weighing a range of proposals to raise revenue, including a new tax on alcoholic drinks, a proposed cigarette tax increase, and legalizing cannabis for recreational use. The state Senate has also proposed a $12 minimum wage increase by 2022.
• MARYLAND lawmakers are working to override Gov. Larry Hogan’s veto of K-12 education improvements and two related tax bills. The improvements were recommended by a multi-year state study commission of the school finance system.
• MISSOURI lawmakers are discussing an unusual gas tax bill that would raise the rate but offer a refund for the increase.
• NEBRASKA experts explain how Gov. Pete Ricketts’s budget proposal would move money around in the state budget to trigger tax cuts, using these maneuvers to bypass protections that were intended to ensure the cuts wouldn’t go into effect unless the state could truly afford them.
• A proposed SOUTH DAKOTA constitutional amendment would require a supermajority on ballot measures to impose new taxes or spending increases.
• VIRGINIA is now among the states considering legalizing recreational cannabis as lawmakers will take up the subject in a special session that began this week.

What We’re Reading

• University of California, Irvine has a new landing page for information related to Racial Inequity in the Tax System, including academic research, blog posts, news articles, and other resources.
• Though states generally have to balance their budgets, many are able to deficit-finance to an extent through the municipal bond market. Pew shares an interview with two experts on how states and localities took unusual steps to weather the Covid-19 pandemic and recession, and what the long-term implications of this debt could be.
• The Center on Budget and Policy Priorities explains why states should decouple from the federal tax break for Paycheck Protection Program loans.

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