Just Taxes Blog by ITEP

State Rundown 1/11: Sounding the Alarm on Regressive State & Local Tax Codes

January 11, 2024

States got a wake-up call this week as ITEP released the latest edition of our flagship Who Pays? report, which shows how the vast majority of state and local tax systems are upside-down, exacerbating inequality by taxing low- and middle-income families at higher rates than rich households. Unfortunately, some are still snoozing on the need to improve on their regressive tax codes, as governors and lawmakers in states such as Georgia, Iowa, and Utah pushed instead for more of the same tired old proposals to slash income taxes, which predominantly benefits upper-income households.

Major State Tax Proposals and Developments

  • KANSAS Gov. Laura Kelly began the state legislative session with an unveiling of her bipartisan tax cut plan which will reduce revenues by $1 billion over three years. The proposal – which includes a homestead exemption expansion, full tax exemption on social security income, standard deduction increase, acceleration of the state’s grocery tax elimination, childcare credit increase, back-to-school sales tax holiday, and sales tax elimination on diapers and feminine hygiene products – may thwart Republican plans for a flat tax. – NEVA BUTKUS
  • UTAH Gov. Spencer Cox and his fellow Republicans are floating the idea of eliminating the state’s income tax. While lawmakers have already set aside revenue for the 2024 session for another small income tax cut, no concrete proposals to eliminate the tax have been put forward. According to ITEP’s most recent Who Pays? report, Utah already has a regressive tax system, and eliminating the income tax would only further exacerbate that regressivity by forcing the state to rely more on taxes that require more of low- and middle-income families as wealthy residents reap the greatest benefits. – MARCO GUZMAN

Governors’ Annual Addresses and State of State Speeches

  • In IOWA, Gov. Kim Reynolds gave her Condition of the State address where she outlined her priorities for the legislative session. Unsurprisingly, additional income tax cuts are a major component of her agenda. Iowa’s current personal income tax rates are consolidating and flattening to 3.9 percent in 2026. Gov. Reynolds is now proposing that Iowa cuts that rate to 3.65 percent in 2024 and 3.5 percent in 2025. The plan is expected to forgo $3.8 billion in tax revenue over five years.
  • NEW YORK Gov. Kathy Hochul adopted a staunch anti-tax tone in her State of the State speech, grouping lawmakers who would seek to raise revenues for public priorities together with “bad actors and predatory lenders.” She emphasized the need to build “hundreds and hundreds of thousands of homes,” which she hopes to spur through new and expanded tax abatements and credits. Her forthcoming budget proposal will clarify which priorities she intends to cut to close the state’s $4.3 billion shortfall and pay for those new tax reductions.

State Roundup

  • In the face of a significant budget deficit, CALIFORNIA Gov. Gavin Newsom has rejected calls for a wealth tax and proposed a budget that mostly protects education funding, delaying some planned spending, and cutting funding for social services and climate programs.
  • As GEORGIA begins the 2024 legislative session with a $16 billion surplus, Gov. Brian Kemp is pushing to phase down the state’s flat personal income tax further to 5.39 percent instead of the current final rate of 5.49 percent.
  • In MISSOURI, a state panel tasked with examining local income taxes in St. Louis and Kansas City recommended phasing out the taxes over time and introducing new exemptions for businesses and workers. These one percent taxes on salaries and corporate profits are a major funding source for the two cities. One proposal likely to get more bipartisan support is a reduction in the tax for low-wage workers, St. Louis Public Radio reports. The state legislature may take up the ideas in 2024.
  • NEBRASKA Gov. Jim Pillen has already backed off of his proposal to hike the state’s sales tax to the highest rate in the nation. He still hopes to shift $2 billion off of property taxes but has not yet offered an alternative concrete proposal to do so.
  • The NEW HAMPSHIRE House voted against legislation that would have shifted the state’s business profits tax from “water’s edge” reporting to worldwide combined reporting. The shift would have all but ended the accounting games that multinational corporations use to pretend that their profits are being generated in tax haven countries.
  • TENNESSEE Gov. Bill Lee will propose to simplify and reduce the state’s franchise tax and will not propose a grocery sales tax holiday for 2024—perhaps due to the state’s flattening revenue.

What We’re Reading

  • The New York Fiscal Policy Institute has added compelling evidence to the state migration conversation, arguing that housing costs—not taxes—are what is driving families out of New York, finding that the savings from lower housing costs are 15 times greater than from savings from taxes.
  • “Mansion taxes” on high-end real estate sales are an increasingly popular progressive policy tool in states and cities. A recent article in Bloomberg digs into how the trend is playing out in California, Illinois, and elsewhere.
  • Politico looks into state budget woes around the country, showing how infusions of federal pandemic-era money are drying up and revealing the folly of permanent state tax cuts passed on the basis of short-term “mirage” surpluses.
  • The seventh and best-ever edition of ITEP’s major Who Pays? report is now out (blog here and full report website here)! The report finds that in the vast majority of states high income earners pay lower tax rates than everyone else. The report has been picked up in national outlets including The Guardian, The Hill, The Huffington Post, Newsweek, and dozens of local news outlets.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email.


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