State Rundown 2/17: Friction Over Tax Policy Still Generating Heat in Some Statehouses

Cold-hearted regressive tax proposals were pushed this week to cut income taxes on high-income households in states including Idaho, Montana, and West Virginia, while advocates for fair taxes and well-funded services continue to turn up the heat on taxing the richest residents in states like Connecticut and Pennsylvania.

Major State Tax Proposals and Developments

• A tax cut bill introduced in the IDAHO House of Representatives would reduce personal income tax rates, lower the sales tax rate from 6 percent to 5.3 percent, and eliminate the grocery credit (while keeping groceries as a part of the taxable sales tax base). – MARCO GUZMAN
• Two important pieces of MONTANA Gov. Greg Gianforte’s budget plan will soon be brought before a legislative committee: one bill will lower income taxes for high earners and the other will provide a capital gains tax exemption for shareholders of Montana-grown businesses. – MARCO GUZMAN
• ILLINOIS Gov. J.B. Pritzker gave his budget address Wednesday, acknowledging the tough decisions the state faces. The budget plan is very lite on tax policy—prioritizing decoupling from corporate tax breaks in the federal CARES Act, but otherwise relying on hiring freezes, additional spending cuts, and operational savings to achieve a balanced budget. – LISA CHRISTENSEN GEE
• Most governors have now introduced their budgets and given their annual addresses. A full list of previous and scheduled addresses with links is available here.

State Roundup

• CONNECTICUT Gov. Ned Lamont has so far opposed progressive tax increases to balance the state budget and restore funding for schools and other priorities even though advocates and lawmakers are supporting such measures. Now lawmakers and public employees are calling out Lamont’s budget proposal for freezing workers’ pay and continuing shoe-string budget practices in order to avoid taxing rich households.
• IOWA House lawmakers advanced three bills to support Iowans’ child care needs, including enhancing the state’s Child and Dependent Care Credit and Early Childhood Tax Credit and creating a new credit based on a federal program for employer-provided childcare.
• Lawmakers and business leaders in KENTUCKY are pushing for a state gas tax increase to fund infrastructure repairs and upgrades. Two separate bills to legalize cannabis are also moving through the legislature.
• MARYLAND lawmakers overrode a gubernatorial veto to pass the nation’s first digital advertising tax. It is designed to target very large online advertisers but is expected to face strong challenges in court.
• A handful of revenue-raising bills are being discussed in MISSISSIPPI, including a medical marijuana tax proposal that would add a 7 percent sales tax and clear the way for a medical program in the state following the voter-approved Initiative 65.
• Some NEW JERSEY lawmakers are proposing a study of the increase in remote work that started years ago and greatly accelerated in the past year, including how the shift effects employees and businesses and how the state’s tax code might adjust.
• Budget hearings began in PENNSYLVANIA this week as lawmakers discuss Gov. Tom Wolf’s proposal to raise the state income tax.
• WEST VIRGINIA’s Sen. Joe Manchin pushes back against the governor and Republican leadership on their mission to eliminate the state’s personal income tax. He warns of the long-term ramifications of such a proposal on the state’s key investments.

What We’re Reading

• The Washington Post provides statistics, graphics, and context to flesh out how bad the revenue shortfalls and job losses from the Covid-19-induced recession are across the states.
• The Center on Budget and Policy Priorities provides helpful information on state and local aid and needed K-12 funding included in the U.S. House Covid-19 relief proposal, while also looking ahead to ways states can reform higher education funding.
• TaxProf Blog summarizes a recent essay explaining how a tax break for pass-through income included in the CARES Act amounts to a regressive, disingenuous, unlimited deduction for high-income households tucked into a bill meant to provide emergency help to families in need.
• A recent video from NEBRASKA’s OpenSky Policy Institute explains how property tax growth caps backed by Gov. Pete Ricketts and some state lawmakers would cut off funding for many school districts and make it harder for schools and other local jurisdictions to continue providing needed services.

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