State Rundown 4/27: States Remain Active on the Tax Front

While tax discussions among federal lawmakers continue in fits and starts, major tax news continues to make waves across the nation. Case in point: a major budget agreement reached between the Connecticut governor and lawmakers will temporarily increase the state Earned Income Tax Credit and create a new one-year Child Tax Credit. Meanwhile, across the country, the Arizona Supreme Court threw a veto referendum off the November 2022 ballot, reversing a lower court’s decision and holding that it was unconstitutional. The referendum would have allowed voters to determine the fate of a 2.5 percent flat income tax bill that the governor and legislature hastily enacted after voters initially voted to increase taxes on wealthy Arizonans in 2020.

Major State Tax Proposals and Developments

• With one week to go in their legislative session, CONNECTICUT lawmakers and Gov. Ned Lamont have reached agreement on budget and tax policy. The compromise includes more funding for early childcare and mental health services and about $600 million in tax reductions. The recently enacted gas tax holiday will be extended. The state property tax credit will be increased and expanded on a permanent basis and pension income will be fully exempt from state income tax. On a temporary basis for the coming year the state’s Earned Income Tax Credit (EITC) will rise from 30 percent of the federal credit to 41.5 percent, and a new $250 Child Tax Credit (CTC) for middle-and low-income families will be created. A separate bill could exempt certain tribal nation property from city taxes. – DYLAN GRUNDMAN O’NEILL
• OKLAHOMA legislators continue to weigh hundreds of millions of dollars in tax cut proposals, despite having just passed a nearly $700 million economic development incentive package and cutting tax rates last year. Current tax cut proposals include cutting income tax rates, eliminating the corporate franchise tax, eliminating the grocery tax, increasing the grocery tax credit, and changing how sales taxes on vehicle sales are calculated. Experts say that corporate and individual income tax cuts would not boost the state economy. – BRAKEYSHIA SAMMS
• The ARIZONA Supreme Court recently held that it will not allow the veto referendum on the 2.5 percent flat tax to appear on the November 2022 ballot, after reversing a lower court’s decision and finding that two sections of the law prevented it from being referred to voters. The court’s ruling is another blow to voters, education advocates, and supporters of progressive, sustainable revenue.  – MARCO GUZMAN

Governors’ Annual Addresses and State of State Speeches

• Tax policy was front and center for MINNESOTA Gov. Tim Walz’ State of the State address. The Governor noted that tax cuts for the rich seen in other states will not “grow our economy from the middle out” and made another push for his one-time payment proposal of $500 checks for single households and $1,000 for families who meet certain income requirements. Neither the House nor Senate included his one-time payments in their budget proposals.

State Roundup

• CALIFORNIA lawmakers have until Sunday to pause an inflation-based increase to the state gas tax scheduled to take effect in July as requested by Gov. Gavin Newsom, and it appears they will not do so after talks fizzled out. Other related proposals such as Newsom’s plan to send payments directly to drivers on debit cards do not face the same deadline and are still being considered, as is an effort to increase a state tax credit for renters.
• With only two weeks left in the legislative session, COLORADO lawmakers are working to pass a property tax reduction bill in an effort to head off a 2022 ballot initiative that would place a strict cap on property tax increases. The proposals being considered would most likely be temporary and could come in the form of a rate reduction.
• COLORADO lawmakers and Gov. Jared Polis agreed to send TABOR rebates to residents. The amounts range from $400 for single filers and $800 for joint filers across all income levels. It’s a compromise deal, as Democrat lawmakers wanted to ensure that lower income residents benefitted more while the governor wanted to preserve the current arrangement wherein wealthier residents get more back (via tiered sales tax rebates).
• Last week, the DISTRICT OF COLUMBIA implemented a week-long tax holiday waiving the 6 percent tax on medical marijuana sales.
• FLORIDA Gov. Ron DeSantis made headlines when he signed a bill revoking Disney’s special tax status. But one thing is clear—with or without its self-governing authority, Disney reaps hundreds of millions of dollars in tax breaks.
• GEORGIA Gov. Brian Kemp signed a tax cut bill that will create a flat tax structure and reduce the tax rate to 4.99 percent by 2030. The bill will also increase personal exemptions and the retirement income exclusion. When fully implemented, the bill will cost the state over $2 billion, and the vast majority of tax cuts will benefit the top 20 percent of earners.
• The MASSACHUSETTS House rejected a plan to suspend the state gas tax.
• Senators in MINNESOTA are struggling to compromise on a tax relief plan. Democrats support Gov. Walz’ one-time payments, but Republicans are pushing to cut the bottom income tax bracket.
• The MISSOURI House has passed a one-time payment that would provide a nonrefundable $500 for single filers and $1,000 for joint filers. The payments would cost the state $1 billion.
• NEW HAMPSHIRE legislators are advancing a bill that would reduce the Business Profits Tax rate from 7.6 percent to 7.5 percent – a reduction that would mostly benefit few, very profitable entities.
• A Republican-sponsored bill in OHIO would phase out the state’s personal income tax over ten years.
• The PENNSYLVANIA House voted to cut the corporate net income tax rate from 10 percent to 9 percent. The rate will likely fall to 8 percent by 2025. The bill now heads to the Senate.
• TENNESSEE Gov. Bill Lee signed a state budget with over $418 million in tax cuts including waiving vehicle tag renewal fees for a year and eliminating grocery taxes in August.
• With property values being driven up as a result of a booming real estate market, TEXAS leaders are focused on ways to slow property tax increases. Proposals to cut property tax rates include a “taxpayer bill of rights” championed by Gov. Greg Abbott; a plan for the state to pick up 50 percent for public schools put forth by gubernatorial candidate Beto O’Rourke; and ballot measures aimed to raising the homestead exemption and a constitutional amendment allowing homeowners to qualify for additional reductions.
• WEST VIRGINIA lawmakers entered a special session this week and passed an economic development bill. The agenda did not include gas tax holidays, as some Democrats had hoped.

What We’re Reading

• Giving new meaning to the Oliver Wendell Holmes quote, “taxes are what we pay for a civilized society,” a new hypothesis for explaining the origins of civilization posits that production of cereal grains like wheat and maize was a key determinant because these crops can be divvied up, stored, and therefore taxed.
• Governing reports on Urban Institute research explaining why gas tax cuts amid rising prices don’t achieve their intended effects, why direct payments work better, and how a longer-term focus on density and public transit are best of all for reducing both climate change and inflation.
• Governing also delves into the manifold ways rising inflation affects government budgets and public services as well as individuals.

 

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