State Rundown 6/14: Summer Breeze & State Tax Policies

As the sweet days of summer pass, the scent of jasmine isn’t the only thing blowing through the minds of state lawmakers, as tax policy discussions remain at the forefront. Connecticut lawmakers might be looking to enjoy some time outdoors now that the governor has signed the state budget into law. Included in it was an income tax cut aimed at low-income families, in addition to the increase to the Earned Income Tax Credit. And though summertime means school is out for many, the topic of education, and specifically school voucher tax credits, continues to make us not feel fine. Fortunately, Illinois lawmakers took the bold step of allowing their voucher program to expire by leaving it out of the state budget. ITEP’s Carl Davis recently highlighted the opportunity Illinois politicians had, explaining that the costly program likely benefits the wealthiest residents’ most and may allow some to exploit loopholes that help them avoid paying federal tax on capital gains income. Similar lessons are being learned in Arizona, as a recent projection has the state’s voucher program coming in at almost double the expected $500 million cost.

Major State Tax Proposals and Developments

• CONNECTICUT Gov. Ned Lamont signed into law the state’s fiscal year 2024-2025 budget, which includes a cut to the two bottom income tax rates, an increase to the Earned Income Tax Credit (from 30.5 percent to 40 percent of the federal credit), and an expansion of the pension and annuity earnings benefits.
• The NEW HAMPSHIRE legislature passed its two-year budget, which includes an accelerated repeal of the state’s Interest and Dividends Tax. The tax was scheduled to phase out by 2027 but is now scheduled for 2025. The tax collects a portion of income generated from wealth ownership, including corporate stocks or debt that pays interest.
• Lawmakers chose not to extend ILLINOIS’ private school tax credit, which sunsets at the end of the year, by excluding it from the state budget. Though it could be revived through other legislation. The program allows for a 75 percent income tax credit on donations to a fund that provides private school vouchers and siphons state income tax dollars away from public education to private, often parochial schools.

State Roundup

• ARIZONA lawmakers in the Republican-controlled House rejected a Senate bill that would have ratcheted down the state’s income tax when the state saw a revenue surplus.
• MISSOURI school districts and counties are urging Gov. Parson not to sign Senate Bill 190, which authorizes counties to freeze property tax levels for seniors—regardless of income or need.
• Senate lawmakers in NEW JERSEY approved a corporate tax overhaul that would eliminate the state’s taxation of foreign income (under GILTI) and replace the lost revenue with a change in reporting requirements and higher taxes on investment firms.
• Additionally, a NEW JERSEY bill that would provide a property tax break for seniors has advanced after an Assembly panel gave its seal of approval. Critics have pointed out that the plan favors wealthy retiree homeowners and does nothing for renters.
• The PENNSYLVANIA House passed legislation that would exempt cell phone services from the state’s 6 percent sales tax and 5 percent gross receipts tax. The exemption, which was included in Gov. Josh Shapiro’s budget proposal, is estimated to reduce state revenue by $62 million.
• The PENNSYLVANIA House also passed bills with bipartisan support that would create a state-level Earned Income Tax Credit and expand the Child and Dependent Care Enhancement Tax Credit Program. The bill creating a state-level EITC would be equal to 25 percent of the federal credit, and the other bill would gradually increase the state’s childcare credit, which currently provides a credit equal to 30 percent of the federal CDCC, over five years until it would reach 50 percent in 2027.
• VERMONT Gov. Phil Scott vetoed legislation that would increase funding for early childhood education and extend childcare subsidies to families up to 575 percent of the federal poverty level, which would be partially funded by a new 0.44 percent payroll tax. While the governor supported increasing childcare funding in his proposed budget, he opposed the legislation due to the new payroll tax. The Vermont legislature is scheduled to reconvene on June 20 to consider action on legislation that the governor vetoed, including the state budget that also received a veto.
• Republican lawmakers in WISCONSIN are pushing to repeal the state’s personal property tax. The tax, which has existed since the state’s founding, has been reeled in for decades and now taxes only furniture, watercraft and a few other items.

What We’re Reading

• Michael Leachman at the Center on Budget and Policy Priorities provides his take on the New Jersey senior property tax credit that is currently being debated, and notes that the credit is misguided because it’s expensive, not based on need, and leaves out renters.

 

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