The last states are wrapping up legislative sessions, and some are crossing the finish line with major income tax cuts. Ohio will move from a graduated income tax bracket structure to a 2.75 percent flat income tax, costing the state $1.1 billion in annual revenue. Wisconsin lawmakers ended their session with a budget bill that, alongside a personal income tax cut, will expand how much retirement income can be exempt from income tax. Their package is expected to cost $1.4 billion over two years.

These major tax cuts come on the heels of the passage of the federal tax and spending megabill, which is expected to blow holes in state budgets as federal spending declines for important state services. Numerous states expressed worry this week about the implications of this bill, with states like Louisiana and Colorado considering special sessions to fill the imminent gaps in their budgets.

Major State Tax Proposals and Developments

• OHIO Mike DeWine signed the state’s budget that will provide massive tax cuts to the wealthy. The new budget includes a 2.75 percent flat income tax for all earners, reducing the top tax rate of 3 percent for those earning over $100,000. The tax change is estimated to cost the state $1.1 billion a year. DeWine also issued several line-item vetoes on property taxes. One provision would have limited how much cash school districts could hold from year-to-year and mandated property tax cuts to make up for cash that was not spent. Another provision would have empowered county lawmakers to reduce local property taxes at will, including levies approved by voters. The state legislature can only override a veto if it receives support from two-thirds of the legislature. – MILES TRINIDAD
• The WISCONSIN legislature passed a budget that included about $1.4 billion in tax cuts over the two-year budget. Specifically, the state’s second highest bracket was significantly expanded, reducing taxes for middle and upper-middle class filers. Additionally, the state has moved from a targeted $5,000 exemption on retirement income exclusively available to low- and moderate-income retirees to a flat $24,000 exemption for seniors 67 and older regardless of income. Although negotiations between Gov. Tony Evers and legislative leadership had stalled, both sides wanted to pass into law a provision to raise’s the state’s assessment rate on hospitals to the new 6 percent maximum before President Trump signed federal changes into law. – ELI BYERLY-DUKE

State Roundup

• Legislative observers in COLORADO believe a special session is imminent following the passage of the federal spending bill that cuts health care and food assistance benefits to help pay for tax cuts that overwhelmingly favor the wealthy. Lawmakers laid out what they called “unpleasant options” to help fill budget gaps like reducing the state Earned Income Tax Credit and Family Affordability Tax Credit.
• DELAWARE Matt Meyer signed the state’s budget, which did not include the personal tax increases to wealthy Delawareans he previously supported to increase state revenue. Meyer’s proposal would have created three new tax brackets and raised the top rate to 6.95 percent for households earning more than $500,000.
• MAINE Janet Mills expressed concern about the effects the federal spending bill will have on the state budget but mentioned that she was against raising taxes to make up for any shortfalls.
• The anti-tax interests in NEBRASKA who attempted several times in recent years to replace most of the state’s revenue system with a large and harshly regressive consumption tax are back again. This year they are leaving out the consumption tax and just proposing a ballot measure to eliminate and ban property, income, and inheritance taxes with no replacement for the billions of dollars of funding those taxes generate for shared priorities in the state.
• OREGON Tina Kotek suggested that she might call a special session to keep the state’s transportation fully functioning after the five-month regular session ended without passing any new transportation funding.
• The PENNSYLVANIA House passed legislation that would create an earned income tax credit equal to 30 percent of the federal credit.
• WASHINGTON state officials are estimating federal cuts to nutrition programs alone will create a $200 million hole the state will have to fill with homegrown revenue if they are to avoid 170,000 Washingtonians losing needed aid.

What We’re Reading

• The Texas Tribune details how the state legislature failed to pass a bill to create local government disaster preparedness grants – which could have helped improve the emergency preparedness of Kerr County.
• Huntsville, Alabama has rapidly annexed new housing developments to lower the city’s property tax rate. As a result, the school district is dealing with an influx of students they don’t have classroom space for.

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