State Rundown 5/18: Credits, Cuts, and Corporate Revenue Raisers

This past week, in statehouses around the country, tax policy decisions are moving fast as budgets were signed and budget plans were released and passed. The governor of Arizona signed a compromise budget, negotiated with the Republican-dominated legislature, that included a one-time child tax rebate. Meanwhile, Senate Republicans in North Carolina passed their budget plan, which will speed up the implementation of even deeper income tax cuts than those proposed by the House. Meanwhile, in Minnesota, lawmakers have agreed on a bill to provide a new Child Tax Credit and rebates, in addition to changes for multinational corporations with offshore profits and an expanded Social Security exemption.

And if you too have noticed the uptick in conversations around property taxes, you’re not alone, as it’s been a major topic in 2023. Luckily, ITEP’s Carl Davis and Brakeyshia Samms have published a new report and an accompanying blog highlighting a policy option that is has been missing from debates on how to equitably address rising property tax bills.

Major State Tax Proposals and Developments

• ARIZONA Gov. Katie Hobbs signed a roughly $18 billion fiscal year 2024 budget into law. While the budget did not address the voucher program, which was expanded under the previous administration, it did include a one-time child tax rebate for children and their families. – MARCO GUZMAN
• MINNESOTA lawmakers announced an agreement late last night that includes a crackdown on multinational corporations that are using foreign tax havens via the implementation of a global intangible low-taxed income (or GILTI). The agreement also provides a new Child Tax Credit of up to $1,750 per dependent which is expected to cut child poverty by nearly 25 percent, $1.1 billion in rebates for married couples making up to $150,000 and a broader exemption for Social Security income (for those making up to $100,000). This plan must pass the House and Senate before moving to the Governor’s desk for signature. – NEVA BUTKUS
• In NORTH CAROLINA, the Senate’s two-year budget plan quickly passed and now House and Senate lawmakers will negotiate a final deal. The Senate’s plan speeds up cuts to individual income taxes, bringing the tax rate to 3.99 percent by 2025 and to 2.49 percent by 2030 (the current tax rate is set at 4.75 percent, with a phasedown to 3.99 percent by 2027). These cuts are larger than those proposed under the House bill. Teacher pay is being pitted against tax cuts skewed toward the wealthy. The Senate plan would raise teacher pay by an average of 4.5 percent, compared to a 10 and 18 percent raise in the House and Governor’s plan, respectively. – BRAKEYSHIA SAMMS
• The VERMONT legislature passed legislation creating a new 0.44 percent payroll tax to fund investment in early childhood education and childcare subsidies for families up to 575 percent of the federal poverty level. The legislation passed with veto-proof majorities in both chambers, but Gov. Phil Scott has threatened to veto any tax increases. The childcare plan is expected to cost about $120 million. The payroll tax is estimated to raise $80 million, and the General Fund will contribute an additional $50 million. – MILES TRINIDAD

State Roundup

• A Senate bill that would cut the state’s sales tax on groceries in ALABAMA from 4 to 2 percent over four years will be discussed in the House this week. The bill received unanimous support in the Senate and is expected to receive broad support in the House, as well.
• Gov. Laura Kelly of KANSAS has vetoed a bill that would have provided $80 million in various tax cuts. While Gov. Kelly expressed support for certain line items, such as personal property tax reforms, she criticized many of the tax breaks including credits for anti-abortion pregnancy centers and tax breaks for health clubs.
• The LOUISIANA Senate passed a tax package that would phase out the corporate franchise tax over four years, costing the state $1 billion in revenue. A portion of this loss would be offset by scaling back the state’s Quality Jobs program which, according to the Louisiana Legislative Auditor, has a return on investment of only five cents for every dollar.
• MARYLAND Gov. Wes Moore signed legislation exempting up to $20,000 of military retirement income for residents who are 55 and older and $12,500 for retirees younger than 55. The legislation increases the previous exemptions from $15,000 and $5,000, respectively.
• MINNESOTA lawmakers in the House and Senate have sent a bill to Gov. Walz’ desk that would create a state paid sick leave program. The legislature continues to work through details of the state’s tax plan.
• Despite some disagreement about the scope of cuts, NEBRASKA lawmakers have advanced dual tax cut proposal. The first limits educational institution’s authority to collect property tax and replaces some of those dollars with state money. However, in the second the legislature is concurrently advancing a substantial cut to its income tax—threatening its ability to meet the commitment to schools.
• The NEBRASKA legislature also has given first round approval to LB727, an omnibus of sales tax credits principally benefiting corporations. At a cost of about $50 million in the first biennium, these cuts will also endanger the state’s ability to sustain its investments in K-12 education and other key services.
• OKLAHOMA’s legislature is set to send a bill to the governor’s desk that, despite criticism from the state’s Tax Commission, expands tax credits for use outside of the public education system. The credit for private school tuition increases to $7,500 per child in households making less than $75,000 annually. Additionally, parents of homeschool students can claim a $1,000 tax credit per child for online curricula, tutoring, instructional materials, and other qualified expenses. These credits go into effect in January 2024.
• In TEXAS, Gov. Greg Abbott, signed an electric vehicle tax into law. Senate Bill 505 requires electric vehicle owners to pay $400 to register a new electric vehicle. Alongside other fees and renewing, registration will cost $200.
• WASHINGTON Gov. Jay Inslee signed legislation expanding the Working Families Tax Credit to those who are married but file their taxes separately and allowing retroactive refunds for up to three years for those who previously qualified for the credit but did not claim it.

What We’re Reading

• The New York Times published a stunning report showing the trends in projected wealth transfers and find that the richest Americans will benefit the most, thus reinforcing growing wealth inequality.
• The Washington Post reports that the Internal Revenue Service is looking to disrupt the tax-prep industry, as it has developed its own prototype system for filing tax returns. The service will be available on a trial basis for a small group of filers for the 2024 filing season.
• Route Fifty takes a look at the lawmakers across the country who have been targeting local governments and undermining their ability to pass their own laws, including those to raise revenue.
• The Massachusetts Budget & Policy Center highlights how various features of the House tax plan would impact racial equity in the state.

 

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