January 11, 2023
January 11, 2023
Governors have begun their annual trek to the podium in statehouses across the U.S. to lay out their visions for 2023, and so far, taxes look like they will play a major role in debates throughout state legislative sessions. Proposals big and small, like the governor of North Dakota’s plan to move to a flat tax structure or the governor of Arizona’s plan to eliminate sales tax on feminine hygiene products will undoubtedly evoke intense debate. More importantly, however, are the specifics laid out in the steady stream of governors’ budget recommendations that are being released. In New Mexico, the governor wants to provide residents with another round of tax rebates and surprisingly cut income tax rates and the gross receipts tax. To the west, the governor of Utah sounds a bit more cautious of larger income tax cuts and smartly used the “Kansas experiment” as an example of what he wants to avoid with permanent cuts in times of temporary surpluses.
Major State Tax Proposals and Developments
- Gov. Sarah Huckabee Sanders in ARKANSAS continues to pledge her intent to phase out the state income tax.
- While UTAH lawmakers are pushing for a larger cut to the state’s flat income tax rate—from 4.85 percent to 4.5 percent—Gov. Spencer Cox has stated recently that, “it’s not something I can get comfortable with right now,” and referenced the economic woes Kansas faced several years ago as an example of “what happens when you cut too deep.”
- NEW MEXICO Gov. Michelle Lujan Grisham released her 2023 budget recommendations and in it, called for $1 billion in tax rebates that could provide residents with up to $1,500 per household and $500 million in income and gross receipts tax cuts.
Governors’ Annual Addresses and State of State Speeches
- In her 2023 State of the State Address, ARIZONA Gov. Katie Hobbs pledged to exempt diapers and feminine hygiene products from state sales tax in an effort to help lower costs for families.
- FLORIDA Gov. Ron DeSantis called on enacting a record amount of tax cuts amid a state budget surplus to counter the effects of inflation on Florida families but did not provide any specific proposals.
- IDAHO Gov. Brad Little touted his record of cutting taxes in his 2023 state address and committed to an additional $120 million in property tax cuts in the new year.
- NEW YORK Gov. Kathy Hochul made no new tax proposals in her State of the State address this week, touting recent middle-class tax reductions and prudent budgeting as reasons that major changes aren’t needed. Her speech did focus on her plans to improve housing affordability, which include some use of tax incentives.
- NORTH DAKOTA Gov. Doug Burgum called for the passage of a flat tax system that eliminates or reduces taxes for 60 percent of North Dakotans, as well as the complete elimination of the state income tax in the future. He also called for reducing local property taxes.
- SOUTH DAKOTA Gov. Kristi Noem continued to propose eliminating the state’s sales tax on food, after efforts to repeal the tax stalled last year, as the state continues to see a surplus in the state budget. However, state lawmakers received a memo stating that once federal stimulus funds were removed from total revenues, state revenues actually decreased.
- Though the policy isn’t new, WASHINGTON Gov. Jay Inslee made sure to mention that the state’s Working Families Tax Credit – a landmark advancement for tax fairness enacted two years ago – will boost incomes for more than 400,000 families starting this year.
- CALIFORNIA Governor Gavin Newsom presented his FY24 budget proposal, which proposed several relatively minor tax changes alongside its effort to close the state’s modest projected deficit. Specifically, Newsom proposes to exempt student loan forgiveness from taxation; ensure that income from incomplete non-grantor trusts is taxed; and extend the states Film and Television Tax Credit.
- To combat rising property tax bills, COLORADO Gov. Jared Polis called on lawmakers to approve an additional $200 million in property tax cuts over the next two years.
- In HAWAII, Governor Josh Green told the Hawaii State Teachers Association that he will be proposing a $500 tax credit for teachers to the legislature once the session opens on January 18th.
- INDIANA legislators, lead by Sen. Baldwin, have proposed adding a state workaround to let passthrough businesses deduct all their state taxes on federal returns.
- KENTUCKY State Rep. Lisa Willner proposed the state adopt a graduated rate income tax—with those earning $100,000 plus paying more.
- MAINE Gov. Janet Mills, in a recent statement on her recently unveiled budget, said it included no tax increases.
- MINNESOTA lawmakers in the House recently passed a tax conformity bill by a 132-0 vote. Lawmakers in the Senate are also planning on debating a bill that would eliminate taxes on Social Security income.
- Advocates of a radical regressive proposal to replace NEBRASKA’s tax system with a consumption tax are doubling down on their efforts this year, introducing a slightly modified version of the legislation and launching a parallel effort to gather signatures for a ballot initiative. There will also be an attempt this year to fully eliminate the state’s progressive inheritance tax.
- In NEW HAMPSHIRE, the Chairman of the Senate Ways and Means Committee is considering a major reduction in property taxes and providing additional funding to municipalities as a way to redirect that state’s budget surplus.
- PENNSYLVANIA lawmakers passed legislation in the Republican-led Senate Transportation Committee to stop the state’s automatic gas tax increase in 2023 and permanently end the automatic increase by setting the wholesale price of gas at $2.99 per gallon. The Committee Chairman said that the bill is aimed to alleviate rising cost-of-living expenses. However, the bill could impact infrastructure funding as gas tax revenue contributes to road and bridge projects throughout the state.
- Legislators in TEXAS are considering whether to tax owners of Electric Vehicles and the policy design. The bill introduced said it would either charge EV owners a $200 yearly flat fee or a per-mile-driven tax. EV owners support paying some form of a tax or fee to pay for road upkeep.
- One key topic for WASHINGTON State lawmakers this session is revisiting the first-of-its-kind long-term care program and payroll tax to fund it that were approved and then postponed for 18 months to work out some remaining questions.
- A bill that would increase the tax on cigarettes from 60 cents to $1.04 was recently introduced in the WYOMING House.
What We’re Reading
- Previewing a forthcoming report, Michael Mazerov writes in the Off The Charts blog that there is no support in the data for the oft-repeated myth that state taxes are a significant driver of where people live and move. Even relatively high-tax states should continue to prioritize funding for public investments that matter to their residents and their economies over misguided tax cuts, and those states that are “considering budget-busting tax cuts or eliminating their income tax should harbor no illusion that such policy changes will draw significant numbers of people to their state.”
- Governing summarizes major issues to watch in statehouses this year, including the seemingly insatiable appetite for tax cuts among certain lawmakers, despite warnings from economists against using temporary surpluses for permanent tax cuts.
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