State Rundown 5/25: Tax Discussions Heating Up as Summer Begins

While the temperature ticks up outside, the temperature in state legislatures around the country has fallen slightly. But with several states still dealing with ongoing tax and budget issues, this summer could be a hot one. Things in South Carolina certainly have the potential to heat up quickly as a billion-dollar tax cut plan works its way through the legislature. In Minnesota, lawmakers could be heading for a special session, where they will work on a compromise to divvy out tax cuts. Meanwhile, California legislators, thanks to the state’s progressive tax structure, will have to work on how best to invest their almost $100 billion surplus.  

Be sure to keep an eye on ITEP’s State Tax Watch for the most up-to-date tax policy changes in your state.   

Major State Tax Proposals and Developments 

• CALIFORNIA policymakers have much left to discuss, starting with an unprecedented budget surplus of nearly $100 billion, thanks in large part to the state’s progressive tax structure. Much of the surplus is considered ongoing revenue they can count on for priorities like investing in education, addressing homelessness, and expanding mental health care. For the significant portion that is likely temporary, proposals include a short-term expansion of the Young Child Tax Credit to keep 1.7 million children from falling back or deeper into poverty and Gov. Gavin Newsom’s $400 per-driver gas tax rebate. – DYLAN GRUNDMAN O’NEILL 
• The MINNESOTA legislature will likely enter a special session after missing the deadline to pass key legislation during their normal session. Left on the table was a $4 billion tax compromise that eliminated state taxes on Social Security income, reduced the bottom income tax bracket and expanded tax credits for homeowners and renters. – NEVA BUTKUS 
• SOUTH CAROLINA legislators are in conference committee, flushing out differences between each chamber’s $1 billion tax cut plan. The House tax cut plan phases in the cuts over five years and includes triggers that could pause the cuts under certain economic circumstances, while the Senate cuts $1 billion in taxes immediately. – NEVA BUTKUS 
• The OKLAHOMA House has sent a budget to Gov. Kevin Stitt that includes $181 million in one-time payments ($75 to single filers and $150 to joint filers), pay raises for some state employees and nearly $700 million set aside for corporate tax incentives to lure an electric vehicle battery plant to the state. Another bill would eliminate the 1.25 percent sales tax on all vehicle sales. Although discussed, elimination of the state’s 4.5 percent grocery sales tax did not make it into the budget. However, some lawmakers are pushing to change that. – KAMOLIKA DAS 

State Roundup 

• Advocates in CALIFORNIA have submitted signatures to place an initiative on the ballot that would create a 1.75 percent surcharge on income exceeding $2 million. The tax would fund clean air and wildfire prevention efforts and would sunset either after 20 years or as soon as the state meets specified greenhouse gas emissions goals. 
• The temporary Child Tax Credit recently enacted by CONNECTICUT lawmakers and Gov. Ned Lamont – set at $250 per child for up to three children, restricted to middle- and low-income families – will be available for applications beginning June 1. 
• A new DELAWARE bill would prohibit local school boards from using court-ordered property assessments in three counties to increase school district taxes. 
• FLORIDA‘s two-week disaster-preparedness tax holiday starts this Saturday; for the first time, this tax holiday also includes exempting sales taxes on many types of pet supplies. As the Florida Policy Institute has pointed out, sales tax holidays do nothing to reform the state’s upside-down tax code. 
• IOWA legislators approved a sales tax exemption on diapers and feminine hygiene products.  
• A bill to phase out LOUISIANA’s 0.45 cent temporary sales tax before its sunset in 2025 has been deferred in the Senate. The temporary 0.45 cent portion of Louisiana’s 4.45 percent state sales tax currently raises $450 million annually.  
• MARYLAND House Republicans are pushing for a special session to enact a gas tax holiday and stall the automatic gas tax increase scheduled for July 1st, but legislative leaders state that a special session is unlikely. 
• Despite Gov. Whitmer vetoing the MICHIGAN legislature’s previous tax cut plan, Republicans have unveiled another proposal that could cost $2.5 billion. The new proposal includes cutting the flat income tax rate from 4.25 to 4 percent, increasing the EITC to 20 percent, creating a child tax credit and increasing the personal exemption among other policies.  
• MISSOURI’s session has ended, and the state budget is headed to Gov. Mike Parsons’s desk. He has signaled a preference for permanent tax cuts over one-time rebates and has left open the option to veto the bill. (Both chambers have passed their own versions of a rebate.) 
• Two NEW JERSEY legislators have proposed a tax cut plan that would cut income tax rates on the four lowest tax brackets. Advocates and policy experts have other, more targeted, ideas for using the surplus like expanding cash assistance. 
• VIRGINIA lawmakers are expected to return to the Capitol next week to hash out budget decisions and lingering questions about the standard deduction and earned income tax credit. 
• VERMONT legislators reached a compromise on a new Child Tax Credit that would provide families with a $1,000 boost per child under 6, filling in partly for the expired federal expansion. The credit is refundable and, unlike similar measures mentioned above in California and Connecticut, permanent. It is unclear if Gov. Phil Scott will sign the bill. 

What We’re Reading 

• The Georgia Budget & Policy Institute discusses how the state’s new flat tax will exacerbate racial and economic inequities. 
• South Carolina’s Post and Courier published an editorial highlighting the shortsightedness of tax cuts when a state has a laundry list of underinvested services.  
• Forrest Wilder broke down, in Texas Monthly, why residents’ property tax bills have increased noticeably over the past year, and spoiler alert: it primarily has to do with the state not having an income tax and relying solely on sales and property taxes as the main sources of revenue. 
• Recent polling about philanthropic donations confirms that tax benefits are not a primary motivator. 

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 Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email. 

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