State Rundown 1/26: Tax Season Brings With it Reminder of EITC’s Impact

Tax season has officially kicked off and with Earned Income Tax Credit (EITC) Awareness Day right around the corner, it serves as another reminder for how important the EITC, and other refundable credits, are – and not just at the federal level, but at the state level as well. As we highlighted last week, the EITC is an important policy tool that goes a long way in helping improve family economic security and promoting racial equity. This is especially true when the credit is made refundable and coupled with Child Tax Credits, which help set young Americans on a more stable path to success. So, it’s no surprise to see state leaders turning to the EITC in 2023. In Michigan, a Senate bill would increase the credit to 30 percent and newly elected governors in both Maryland and Massachusetts have supported expanding the credit in their respective states. Although they may be coupled with regressive income tax cuts that primarily benefit the already well-off, plans to increase the EITC in Montana and Nebraska are also being considered. And finally, in Hawaii, the governor announced in his yearly address, his goal to expand the size of the Aloha State’s EITC from 20 percent of the federal credit to 30 percent.

Major State Tax Proposals and Developments

• MINNESOTA Gov. Tim Walz included rebate checks, $219 million for reductions to taxes on Social Security benefits, and cannabis legalization in his two-year budget proposal. The direct payments would provide families earning less than $150,000 with an income tax credit equal to $2,000 and single filers earning less than $75,000 with $1,000. An additional $200 bonus per child (up to three) would also be available. Moreover, the governor’s budget also calls for revenue raising by several means, including a new payroll tax for paid family and medical leave and a 1.5 percent tax on gains and dividends between $500,000 and $1 million and a 4 percent tax on gains over $1 million. These policies come in addition to the already announced $1,000 refundable Child Tax Credit and expansion of the state child and dependent care credit, among other things. — MARCO GUZMAN

Governors’ Annual Addresses and State of State Speeches

• HAWAII Gov. Josh Green in his first State of the State address proposed tax policies aimed at providing economic security and a lower cost of living for households in Hawaii. He described his goals of creating a $500 educator tax credit for teachers, doubling the standard deduction and personal exemption, adjusting tax brackets and deductions for inflation, increasing eligibility for the food tax credit, and expanding the state’s EITC and CDCTC.
• NEBRASKA Gov. Jim Pillen used his first State of the State address to repeat the myth that slashing taxes for high-income households and corporations improves state economies, calling for tax changes – including a cut to the top income tax rate to 3.99 percent – that would undermine the state’s budget, economy, and pursuit of equal opportunities.
• NEVADA Gov. Joe Lombardo called for corporate tax cuts and using federal pandemic aid to fund a one-year gas tax suspension and state employee pay raises, among other items, in his first State of the State address.
• KANSAS Gov. Laura Kelly delivered her 2023 State of the State address and made a point to stand against “irresponsible tax proposals,” which presumably, refers to a Republican-backed effort to move to a flat income tax. Instead, the governor committed to eliminating sales tax on feminine hygiene products and diapers, creating a back-to-school sales tax holiday, and increasing the exemption threshold for Social Security benefits from $75,000 to $100,000. The proposed changes are estimated to reduce revenues by $500 million over three years.
• As Republican leaders in WISCONSIN push for moving the state to a flat income tax structure, Gov. Tony Evers pushed back in his annual state address, saying, “splurging $3.5 billion to hand out big breaks to the wealthiest 20 percent of earners isn’t responsible, folks; it’s reckless.” Also, he further added, “Spending billions on a flat tax isn’t a workforce plan or an economic development plan.”

State Roundup

• Picking up on a multi-state push reported here last week to tax extremely wealthy households, advocates for a stronger CONNECTICUT are proposing several ideas, including a mansion tax, a higher rate on unearned income, a corporate tax increase, a higher rate on extremely large corporations, and a study into the un- and under-reported income behind the “tax gap.”
• An analysis partly based on ITEP data shows tax and spending proposals presented in recent weeks and backed by Gov. Jim Pillen of NEBRASKA would quickly evaporate the state’s forecasted surplus and potentially cause the state to reach into Rainy Day savings that are meant for more difficult times.
• The INDIANA Senate passed Senate bill 37, which would require localities to report information on their food and beverage taxes to the state and that all local food and beverage taxes expire by 2045.
• NORTH DAKOTA lawmakers are continuing to push for both income and property tax reductions, totaling between $300 million and $600 million.
• The MARYLAND Supreme Court will review a lower court ruling that struck down the state’s first-of-its-kind digital advertising tax, which was intended to fund the state’s public schools.
• The MICHIGAN House Appropriations Committee Chair said there is currently no plans from the Democratic majority to block an automatic income tax decrease triggered by the state’s revenue surplus. The trigger law could reduce the tax rate from 4.25 percent to 4.05 percent, costing about $800 million.
• A MISSOURI senator has proposed eliminating the state’s already extremely low corporate income tax over several years. This tax cut would overwhelmingly benefit out-of-state corporations who do little production and job creation in the state.
• In TEXAS, a senator from San Antonio, introduced a bill that would impose a tax on state gun sales to support a permanent compensation fund for victims of school shootings.
• A bold proposal in WASHINGTON State would create a first-of-its kind state wealth tax, set at 1 percent of the value of financial assets exceeding $250 million. It is estimated to affect only about 700 of the state’s very richest households and bring in more than $3 billion annually for state needs.
• The WASHINGTON State Supreme Court begins hearing arguments this week on whether the state’s excise tax on sales that generate capital gains is legal under the state’s constitution and precedent.
• WEST VIRGINIA Senate President Craig Blair expressed skepticism about Gov. Justice’s proposed income tax cuts and indicated that the Senate is composing a counterproposal that would be less fiscally damaging.
• The Republican-controlled VIRGINIA House of Delegates passed Gov. Glenn Youngkin’s $1 billion tax relief program, which includes cuts to the individual income tax and corporate tax, as well as a deduction for small businesses. Now the legislation awaits action from the Democratic-controlled Senate.

What We’re Reading

• The Saint Louis Post Dispatch editorial board criticizes Sen. Hoskins plan to eliminate Missouri’s corporate income tax, rightly pointing out that the measure would not induce firms to relocate.
• Bloomberg reports on efforts in at least four states – Connecticut, Indiana, Massachusetts, and New York – to raise revenues from giant e-commerce corporations like Amazon, Facebook, and Google through taxes on digital advertising, social media, and data mining.

 

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