Just Taxes Blog by ITEP

State Rundown 1/22: Somewhere Between a Flurry and a Blizzard of State Tax Activity So Far

State Rundown 1/22: Somewhere Between a Flurry and a Blizzard of State Tax Activity So Far

January 22, 2021

ITEP
.ITEP Staff

You won’t find any images of Bernie Sanders and his mittens photoshopped into this week’s Rundown, but you will find the latest news on state fiscal debates, including proposals to generate needed funding by raising taxes on high-income households and profiting businesses in California, Delaware, Hawaii, Maryland, and Washington, as well as misguided efforts to slash taxes in Arizona, Iowa, South Carolina, Utah, and West Virginia. Also in the news are thoughtful improvements to targeted tax credits for families in need in Connecticut and Maryland, harmful obstacles to revenue generation proposed in Nebraska and Wyoming, and renewed hope on the prospect of federal fiscal relief.

Governors’ Annual Addresses and State of State Speeches

  • NEBRASKA Gov. Pete Ricketts included in his address a call to suppress local funding for schools and other public services by imposing a 3 percent growth limit on localities’ ability to raise property tax revenues when needed.
  • SOUTH CAROLINA Gov. Henry McMaster called for cutting the state’s personal income tax by 15 percent over five years and reducing all personal income tax brackets in his 2021 State of the State address.
  • Other recent speeches with less tax content included those by GEORGIA Gov. Brian Kemp, INDIANA Gov. Eric Holcomb, and NEVADA Gov. Steve Sisolak, and NEW MEXICO Gov. Michelle Lujan Grisham.
  • A full list of scheduled addresses is available here, including those to come in the next week in DELAWARE, HAWAII, MICHIGAN, MISSOURI, and TENNESSEE.

Budget and Covid-19 Response News

  • CALIFORNIA Gov. Gavin Newsom’s budget proposal includes $14 billion in economic recovery provisions such as direct $600 payments to millions of residents and additional funding to help people stay in their homes and businesses stay afloat.
  • Faced with a $1.4 billion annual revenue shortfall, lawmakers and HAWAII’s Gov. David Ige weigh a range of revenue raising proposals, including income tax increases on high-income Hawaii residents. The administration is also considering reducing or suspending state tax credits and tax exemptions.
  • KANSAS Gov. Laura Kelly has included a provision that would tax digital downloads, streaming services, and online purchases in her recent budget proposal.
  • State leaders in LOUISIANA adopted a cautious revenue forecast for 2022, as tax collections are expected to increase in the next fiscal year, but not enough to offset the loss of roughly $800 million in federal funds.

Other Major State Tax Proposals and Developments

  • ARIZONA Gov. Doug Ducey proposed a $200 million income tax cut in his recent budget plan, however, the plan came with little detail on the specifics of the cut. – MARCO GUZMAN
  • WYOMING lawmakers in the Senate introduced a resolution seeking to change the state constitution to require a vote by the public for any state or local tax increase. – MARCO GUZMAN

State Roundup

  • A coalition in CALIFORNIA is proposing to raise $2 billion for reducing homelessness, to be raised through higher taxes on large corporations.
  • A COLORADO group that opposed a 2020 ballot initiative that would have kept in place a constitutional amendment that led to a continually decreasing property tax rate plan to qualify a ballot proposal for November 2022 that would reduce the property tax rate to 6.5 percent and 26 percent for commercial properties.
  • CONNECTICUT leaders have proposed a robust child tax credit starting at $150 to $450 for all but the highest-income families and growing over three years to $600 to $1,800 per family.
  • To improve their income tax structure that currently flattens out at only $60,000 of taxable income, lawmakers in DELAWARE are backing a bill to add three new brackets at $125,000, $250,000, and $500,000 to better reflect the scale of today’s inequalities. Lawmakers are also considering waiving income taxes on unemployment benefits.
  • A FLORIDA proposal that would require online sellers to collect and remit sales taxes is has been referred to the Senate Commerce and Tourism Committee and has gained additional support as the state faces revenue constraints caused by the coronavirus pandemic.
  • An effort is underway to repeal IOWA’s inheritance tax even though it already exempts lineal descendants and helps slow the concentration of wealth in the hands of extremely wealthy households.
  • Also, a LOUISIANA representative has proposed legislation that would, among other things, increase the state gas tax by 22 cents over 12 years.
  • MARYLAND lawmakers this week began hearings on multiple bills that could improve their tax code, including proposals to apply a 1 percent surcharge on capital gains income, extend the EITC to more childless workers, close the carried interest loophole, and strengthen the state’s estate tax.
  • MONTANA lawmakers are considering reviving a proposal that was previously vetoed that would offer telecom companies property tax breaks for constructing broadband internet lines across the state.
  • Observers are perplexed by NEW YORK Gov. Andrew Cuomo’s approach to his state’s revenue shortfall, in which he has attempted to take a hard line demanding federal assistance and a much more deferential tact toward his own state’s ultra-rich residents. His proposal to raise in-state revenue, for example, amounts mostly to an accounting gimmick in which the state borrows from high-income households and then pays them back.
  • UTAH lawmakers are considering an $80 million tax cut that could come in the form of exempting Social Security income and military retirement pay from tax.
  • The topline finding from VERMONT’s Tax Structure Commission’s report involved rethinking the state’s funding for public education. The report’s authors propose eliminating the state’s homestead property tax for education which funds nearly two-thirds of the state’s K-12 spending and replacing it with an income tax to fund public schools. The report also recommends sales tax base broadening and steps to make the Green Mountain State more friendly for those looking to work from home.
  • WASHINGTON State lawmakers held hearings on Gov. Jay Inslee’s proposal to implement an excise tax on capital gains transactions. The proposal would apply a 9 percent rate on sales of certain stocks and similar assets, after exempting the first $25,000 for single filers or $50,000 for married couples. Because such assets are owned overwhelmingly by very high-income households, the tax would fall on only about the richest 2 percent of Washingtonians.
  • Eliminating WEST VIRGINIA’s personal income tax, which makes up 43 percent of the state’s General Fund, is on the wish list of Gov. Jim Justice, the Senate President, and others this session. In addition to the abysmal effects this would have on tax fairness, the move would cost the state nearly $2 billion this fiscal year alone.

What We’re Reading

  • Policymakers and advocates are encouraged that President Biden and Treasury Secretary nominee Yellin are in favor of significant state fiscal relief in response to the Covid-19 pandemic.
  • Budgets, health care, pensions, and racial equity are among the “Biggest Issues to Watch” in the states this year according to Governing.
  • The Center on Budget and Policy Priorities writes that state income tax cuts are harmful to both economic prosperity and racial justice.
  • Governing recently produced maps showing Black and Hispanic lawmakers by state.

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