State Rundown 1/18: Governors’ Speeches Kick Off State Fiscal Debates

Gubernatorial speeches and budget proposals dominated state fiscal news this week, as governors proposed a wide array of policies including positive reforms such as Earned Income Tax Credit (EITC) enhancements in CALIFORNIA, a capital gains tax on wealthy households in WASHINGTON, and investments in education in several states. Proposals to exempt more retirement income from tax, particularly for veterans, are a common theme so far this year, having been raised in multiple states including MARYLAND, MICHIGAN, and SOUTH CAROLINA. And NEW JERSEY became the fourth state with a $15 minimum hourly wage. Those wishing to better understand and influence important debates about equitable tax policy should mark their calendars for ITEP’s Data For The Win Webinar on January 30th!  

— MEG WIEHE, ITEP Deputy Director, @megwiehe 

Governors’ Budget Proposals and State of the State Speeches 

• CALIFORNIA’s new Gov. Gavin Newsom is balancing a lot of priorities in his first budget, boosting spending for education, health care, and housing, significantly expanding the state’s EITC (and allowing for monthly instead of annual payments), paying down debt, and saving for the next down turn. Check out these resources summarizing and analyzing the budget. 
• MARYLAND Gov. Steve Hogan’s address included proposals to put $200 million toward the recommendations of an education policy task force (though they suggested $325 million for the first year), full exemption of military retirement income from tax, and three percent state employee pay raises. 
• NEBRASKA Gov. Pete Ricketts’s annual address was a slight change of pace from previous years in that he did not call for income tax cuts, but was true to form in calling for property tax reductions—this time through a 3 percent growth cap—without offering other funding solutions for local services that rely on those revenues. But one long-time statehouse reporter thinks the new-look legislature will be more independent of the governor and may even entertain tax increases. 
• NEW JERSEY Gov. Phil Murphy had a busy week. His annual address focused largely on reforming the $11 billion of corporate tax subsidies that a state audit recently blasted as unaccountable, potentially illegally administered, and unable to prove it produced a single job. He also called for improved funding for education and infrastructure. Then on Thursday he reached a deal to accomplish another goal laid out in his speech, raising the state minimum wage to $15 per hour. 
• NEW YORK’s Gov. Andrew Cuomo addressed the state with a “progressive agenda” that includes legalizing marijuana–with the option for counties and large cities to opt out–and extending the state’s millionaires’ tax for five additional years (through 2024). The plan would also continue to phase-in the state’s “middle-class” tax cut and would make the tax cap on local governments permanent.  
• SOUTH CAROLINA Gov. Henry McMaster wants to use the state’s projected budget surplus in part to boost teacher pay by 5 percent, exempt military retirement income from tax, and give out a $200 million tax rebate. But his proposal includes less than a one-percent increase in per-pupil funding and includes little other detail on his goals to cut taxes. 
• WASHINGTON Gov. Jay Inslee proposed a capital gains tax on wealthy households as part of his executive budget, estimated to raise $975 million annually once in full effect. The tax would apply to gains on stocks, bonds, and other assets, while exempting homes, farms, and retirement savings. 
• Starting his second term in office, ARKANSAS’s Gov. Asa Hutchinson continues to prioritize income tax cuts, though the details of the plan to provide top earners lower rates are changing amidst concerns about unintended tax increases. COLORADO’s Gov. Jared Polis first State of the State Address included plans to lower corporate and personal income tax rates by closing corporate loopholes. Other than promising not to raise taxes, tax policy didn’t get much focus in first term KANSAS Gov. Laura Kelly’s address to the state. NEVADA Gov. Steve Sisolak took a similar approach. In NEW MEXICO, Gov. Michelle Lujan Grisham’s budget plan includes $35 million in proposed tax changes, including collecting taxes from online sales, taxing not-for-profit hospital services and e-cigarettes, and expanding working families tax credit. 
• State of the state addresses took place in ARIZONA, PENNSYLVANIA, RHODE ISLAND, and SOUTH DAKOTA this week as well. While neither Gov. Doug Ducey, Gov. Tom Wolfe, Gina Raimondo, nor Kristi Noem touched heavily on tax policy, Raimondo did announce her support of legalizing recreation marijuana, under a highly regulated industry, earlier this week. Governors in VERMONT and WYOMING also recently laid out their 2019 agendas.  
• Gubernatorial State of the State addresses scheduled for next week include Gov. David Ige of HAWAII, Gov. Phil Murphy of NEW JERSEY, Gov. Tony Evers of WISCONSIN, Gov. Henry McMaster of SOUTH CAROLINA, and Gov. Phil Scott of VERMONT. 

State Roundup 

• The $2-per-pack cigarette tax increase proposed in INDIANA is supported by 70 percent of residents according to a new poll. 
• KANSAS lawmakers dove back into a conversation on federal conformity that ended last session without action due to uncertainty about the fiscal cost to the state budget. While some lawmakers are focused on holding individual taxpayers harmless from changes that might create tax increases due to the treatment of state standard versus itemized deductions, special interest groups are lobbying hard for tax breaks of an uncertain price tag that will benefit businesses. 
• MAINE’s House Speaker announced a proposal for a new tax to fund paid leave for Maine workers this week. The plan would be funded by a 0.5 percent tax on employee wages.  
• MASSACHUSETTS lawmakers are taking the issue of carbon pricing for transportation into their own hands, rather than waiting for a multi-state partnership. Bills calling for carbon fees for transportation are gaining momentum and it is expected that a measure could make it to the governor’s desk this session.  
• One of the first bills filed in MICHIGAN this legislative session is to eliminate the personal income tax on pension income. The state previously had a pension exclusion but repealed it as part of larger tax reforms in 2011. Despite having support on both sides of the aisle, the state’s current economic, fiscal and budgetary position may make passage (estimated price tag of at least $300 million) a more challenging proposition.  
• MISSOURI legislators begin their session with major funding needs, particularly in education and transportation infrastructure, but efforts to address those needs will be impeded by a worrisome revenue forecast, voter rejection of a gas tax update over the summer, and a House Speaker who recently expressed blind faith in tax cuts, saying “I think [2014 and 2018 tax cuts] are all very helpful to the state’s economy…We don’t know how that growth would have changed depending on whether or not we’d done the tax cut.” 
• NORTH DAKOTA lawmakers and tribal leaders appear close to a deal to reconfigure how they share oil tax revenues. Meanwhile, one legislator wants to offer a tax credit to encourage companies to buy automated robots. 
• Faced with a lack of funding for major new road construction projects, OHIO lawmakers are considering a gas tax increase. Gov. Mike DeWine is expected to introduce a transportation budget next month.  

• TENNESSEANS learned this week that the cost of state business tax subsidies is 30 percent higher than previously reported. 
• VIRGINIA’s legislative session and budget debate remain in a holding pattern as lawmakers consider opposing plans for how to react to the federal tax cut. Meanwhile, a new poll shows 63 percent of Virginians are willing to contribute more in taxes if the money is devoted to education, which echoes the approach put forward by Gov. Ralph Northam. 
• WISCONSIN lawmakers and new Gov. Tony Evers are in the early stages of negotiating a divided government. Assembly Republicans delivered a letter to the governor outlining their priorities, but the governor has ideas of his own, including funding a middle-income tax cut by curtailing the costly Manufacturing and Agriculture Tax Credit instead of through budget surpluses. Additionally, Gov. Evers remains open to raising the state’s gas tax to address longstanding infrastructure needs. 
• WYOMING legislators are considering a hugely regressive policy decision that would eliminate the state’s sales tax exemption for groceries. 

What We’re Reading 

• A new report co-released by ITEP provides options to states for addressing over $17 billion in lost state revenue due to tax avoidance via offshore tax havens. 
• Governing has two updates on how states are coping with the federal shutdown, as they question whether they can keep crucial family support programs running, among other issues. 
• Governing also writes that this year’s teacher strike in Los Angeles has some key differences from last year’s strikes, but that strikes and similar actions by teachers could be coming in Indiana, Virginia, and elsewhere. 
• For the many states eager to get on the sports gambling bandwagon, the Tax Policy Center has a few tips. 
• The Maine Center for Economic Policy (MECEP) released a report that lays out a blueprint for the state’s shared growth and opportunity. The report highlights key priorities of investment and identifies a progressive and sustainable revenue proposal to raise the needed funds.  
• The Massachusetts Budget and Policy Center released a report that lays out 14 options for raising progressive revenue. You can view their innovative ideas here.  

• A recent release by Policy Matters Ohio highlights the heavy toll the state’s tax systems has on black and Latino families. The Akron Beacon Journal/Ohio.com’s editorial board wrote about the piece, providing some great context of the impact of tax cuts and tax code changes in the state over the past dozen years.  
• The Wisconsin Budget Project lays out the relationship between income inequality and lagging economic opportunity here. 

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 Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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