January 20, 2022
January 20, 2022
A common theme is emerging out of states, as governors around the U.S. begin the year with their annual state speeches, and the news does not bode well for long-term growth and sustainable budgets. Proposals and commitments to cut taxes have been unveiled in both red and blue states, though they vary in size and scope. The Missouri governor called for a slight reduction to the top income tax rate, while the South Carolina governor pledged to cut income taxes by $1 billion over five years. Moreover, in a surprising move, the governor of New Mexico announced her plan to cut the gross receipts tax and eliminate taxes on Social Security benefits. Though these proposals aren’t surprising, there are options that would better serve residents, like Massachusetts’s plan to create a fully refundable child tax credit or Hawaii’s plan to bolster the food tax credit and make the earned income tax credit refundable and permanent. Simply put: there’s more that lawmakers can do than cut top rates and implement massive giveaways to the wealthy.
Major State Tax Proposals and Developments
- More details have emerged about MISSISSIPPI‘s massive tax giveaway to the wealthy. While the original bill proposed cutting the tax on car tags by 35 percent, the House recently proposed cutting the tax by half. Apparently, reducing the tax on car tags is so popular that the proposal has even convinced some Democrats to support the full income tax elimination bill. In reality, this is an example of state-level politicians trying to enact popular tax cuts that may not come out of their pockets but at the expense of local governments. On a separate note, a new bill would privatize alcohol distribution and lower the excise tax from 27.5 percent to 18 percent. – KAMOLIKA DAS
- Governors’ Annual Addresses and State of State Speeches
- MISSOURI Gov. Mike Parson pledged to cut the state’s top income tax rate to 5.3 percent from 5.4 percent in addition to providing money for childcare centers and pay increases for state employees and teachers.
- NEW MEXICO Gov. Lujan Grisham touted her proposal to cut the gross receipts tax and called for eliminating taxes on Social Security benefits in her 2022 State of the State address.
- SOUTH CAROLINA Gov. Henry McMaster outlined his plan to allocate $500 million of their $3 billion surplus to the state’s rainy-day fund, as well as a plan to cut income tax rates over a five-year period – resulting in $1 billion of lost revenue.
- While much of the focus in CALIFORNIA has been on “existential threats” like Covid-19 and climate change, as well as a proposed single-payer healthcare overhaul and the uphill battle it faces, other important tax-related bills are also on the table in the Golden State. Cannabis taxes could be overhauled to address complaints from producers, for example, and a state tax credit for renters could be bolstered significantly to help middle- and low-income families make ends meet.
- DELAWARE lawmakers filed a new marijuana legalization bill that would adopt a 15 percent excise tax on retail cannabis sales. Seven percent of the tax revenue would be allocated to a new Justice Reinvestment Fund that would support grants and services for communities disproportionately harmed by marijuana criminalization. On a different note, a new bill would require the personal income tax brackets to be annually adjusted for inflation.
- HAWAII House Speaker Scott Saiki said he plans for the house to pass measures that would increase the food tax credit and make the state’s EITC both refundable and permanent.
- An editorial by the Des Moines Register in IOWA questions the vision of Iowa Republicans who are pushing for income tax cuts at the expense of funding public services that all Iowans depend on.
- The KENTUCKY House Agriculture Committee has approved a New Market Tax Credit bill with a $75 million price tag. The bill, which would create the Kentucky Rural Jobs Act, is part of a controversial multi-state effort led by investment firms to create multilayered subsidized lending programs that rarely create rural jobs.
- MARYLAND Gov. Larry Hogan announced more details about his retiree tax cut plan. He proposed eliminating all state income taxes for people over 65 who are also drawing Social Security by 2028. This untargeted plan would cost $4 billion over six years. Critics have pointed out that even with a large surplus, it would be difficult to afford this tax cut and simultaneously fully fund a much-needed education overhaul.
- MASSACHUSETTS lawmakers sent their final fiscal year 2022 budget to the governor, and it includes a fully refundable child tax credit. The benefit is worth $180 per child under the age of 12 for the first two children.
- NEBRASKA’s Revenue Committee advanced an ill-advised bill to expand its existing Social Security exemption to include all higher-income residents.
- NEW JERSEY Gov. Phil Murphy, who was just sworn in for his second term, promised to provide more state aid for local services to enable local property tax cuts.
- NEW YORK Gov. Kathy Hochul’s budget priorities include expanding a tax credit for Broadway, a $1 billion “war on potholes,” and $2.2 billion in property tax rebates.
- Four recently introduced bills in NEW HAMPSHIRE would cost the state more than $250 in lost revenue. The bills seek to cut the rate of business taxes, eliminate the communications tax over time, cut the rooms and meals tax rate, and eliminate the tax on car rentals.
- Gov. Phil Scott of VERMONT has proposed a package of tax cuts that would benefit middle-income Vermonters and retirees. It also includes an expansion of the state’s EITC and childcare and dependent tax credit.
- VERMONT’s House Ways and Means Chair introduced legislation to create a $1,200 fully refundable state-level child tax credit for children 6 years or younger. These policies are well-known and applauded for their effectiveness in poverty reduction, among other benefits.
- The WASHINGTON House has advanced a bill to delay the state’s new payroll tax for long-term care.
- WEST VIRGINIA lawmakers proposed decreasing the state sales tax rate from 6 percent to 4.75 percent and further cutting the rate to 4.5 percent if the Rainy Day Fund reaches $1.1 billion. They estimate that a 1.25 percent decrease would cost $312 million in revenue.
What We’re Reading
- A small town in Alabama has used aggressive policing and fabricated charges to increase its revenues from fines and forfeitures by more than 640 percent over two years. Currently, this revenue accounts for half the city’s total income and the policing practices have had devastating consequences for the town’s low-income residents. And this is not limited to one town in Alabama, as Route Fifty reports on Urban Institute research on this circular “link between the money coming in and who the money goes towards” and the troubling incentives that link creates in localities nationwide.
- Pew Charitable Trusts highlights how at least 33 of the 45 states with a general sales tax plus the District of Columbia have included streaming services into their sales tax base.
- The Oregon Center for Public Policy recently released a report and podcast on how undocumented workers contribute to wellbeing and how deportation harms the state’s families and economy.
- We couldn’t have said it better ourselves: Wesley Tharpe of the Center on Budget and Policy Priorities discusses current efforts in states to slash taxes on high-income households and explains that “In this latest round of the long-running campaign by wealthy interests and corporations to further enrich themselves at everyone else’s expense, states should look at what the evidence shows. Tax cuts haven’t delivered their promised benefits in the past, are a step backward for racial justice, and are likelier to harm families and communities than help them.”
- The Oklahoma Policy Institute is out with a new op-ed urging lawmakers not to pass any new corporate or income tax cuts during the upcoming legislative session. They also reminded lawmakers that recent cuts favored out-of-state earners and upper-income families over middle-class and low-wage earners.
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