January 26, 2022
January 26, 2022
Governors and legislators are beginning to settle on and advance tax bills that could drastically shape the future of their states and several trends and themes are beginning to emerge. The least surprising of these are plans to cut personal income taxes. Utah is eyeing a cut to their flat tax, and though there are better alternatives to permanent cuts, the House speaker, at the very least, wants it to be a modest one compared to other Republican plans. Mississippi, on the other hand, may completely eliminate their income tax—a plan that would devastate their revenues and make the governor’s plan to increase teacher salaries much more difficult. Other states like New Mexico and Rhode Island are targeting retirees by curbing or removing tax on their benefits. Although these are just a couple of the trends we’re seeing out of states, many more are still popping up, like the EITC and CTC expansions in Michigan and Massachusetts. Be sure to stay up with ITEP’s Rundown as we highlight more trends as state legislative sessions heat up.
Major State Tax Proposals and Developments
- UTAH lawmakers in the Senate are moving forward with a bill that would cut the state’s income tax rate from 4.95 percent to 4.85 percent. The bill has the majority leader’s endorsement, but he has noted other bills like HB 197, which would cut the rate to 4.5 percent, was too significant of a cut. – MARCO GUZMAN
Governors’ Annual Addresses and State of State Speeches
- HAWAII Gov. David Ige announced in his final state of the state address his proposal for a $100 tax rebate for every taxpayer and their dependents. Other announcements included support for more funding for broadband and education.
- In his 2022 State of the Commonwealth speech, MASSACHUSETTS Gov. Charlie Baker outlined several budget proposals, including doubling the tax break for children and dependents; eliminating the income tax for the lowest paid 230,000 taxpayers; increasing the tax break for renters; reducing the estate tax; and cutting the property tax for seniors.
- No surprises here. In his State of the State address this week, MISSISSIPPI Gov. Tate Reeves stated that his top priorities are eliminating the state income tax, increasing salaries for teachers, and expanding funding for state police. The House already passed an income tax elimination bill, but it’s unclear whether the Senate will support it.
- Last Thursday, DELAWARE Gov. John Carney delivered his State of the State address and promised not to increase taxes or make any new budget cuts. One of his top priorities is expanding education funding for English learners and low-income students. Some Republican legislators are hoping that corporate tax cut legislation introduced last year will advance in 2022, while some Democratic legislators are pushing for two additional income tax brackets.
- Following his public address, Gov. Dan McKee released his proposed budget. Among other things, the plan would reduce the corporate minimum tax, exempt the trade-in value of motorcycles from the sales tax, and gradually exempt military retirement benefits from RHODE ISLAND state taxes. The latter would incur a revenue loss of $5.8 million per year once fully phased in. The state currently exempts the first $15,000 in military pension income.
- A new ALABAMA bill would phase out local occupational taxes and prevent new occupational taxes or increases on existing taxes. Nearly two dozen municipalities that collect the tax are opposed since municipalities have few avenues for raising revenue.
- Thought leaders in CONNECTICUT released a major report last week calling attention to needed improvements in the state’s tax code. The advocates call for allowing the state income tax to adjust for inflation every year and creating a state Child Tax Credit for middle- and low-income families. Both policies would help mitigate economic and racial inequities.
- An advocacy group for GEORGIA‘s counties is pushing state legislators to allow counties to include all digital products in the sales tax base. Local governments are also advocating for an increase in vehicle fees.
- In HAWAII there are two new bills that would change the tax system. One (paywall) would increase the income tax rate to 13 percent for people making over $500,000. The other (paywall) would increase the tax rate on capital gains so it’s taxed the same as regular income.
- The INDIANA Senate approved a bill that would provide a $125 refund to households after filing their 2021 taxes.
- In addition to creating a flat personal income tax rate, IOWA Gov. Kim Reynolds is proposing replacing the graduated corporate income tax rate with a 5.5 percent flat rate. The current top rate is 9.8 percent on income over $250,000, meaning this cut would benefit Iowa’s largest and most profitable businesses.
- Gov. Whitmer of MICHIGAN is proposing a restoration of the state’s Earned Income Tax Credit (EITC) to 20 percent of the federal credit. The credit was reduced to 6 percent a decade ago to help fund business tax cuts.
- MINNESOTA Gov. Tim Walz released his annual budget which projects a historic $7.7 billion surplus. He has proposed using a third of the surplus to refill the unemployment insurance trust fund, giving one-time direct payments to households and frontline workers and expanding the K-12 Education Tax Credit and the Child and Dependent Care Tax Credit.
- NEBRASKA lawmakers this week debated expanding an existing income tax credit that functions as a refund of a portion of school property taxes; it is capped at a total of $375 million per year and there are efforts to remove that cap. They also advanced a bill to accelerate Social Security tax cuts for higher-income Nebraskans.
- A NEW MEXICO bill that would have phased out the tax on Social Security income failed to advance through its initial hearing after a 4-4 vote from a House panel. Gov. Michelle Lujan Grisham had endorsed the idea of the cut in her annual state address and similar plans are still on the horizon.
- A PENNSYLVANIA lawmaker proposed allowing counties to enact a 1 percent sales tax through voter referendum or county board ordinance that would shore up pension obligations and maintain core services since many local municipalities are financially struggling. Along with the aforementioned Alabama and Georgia news, this proposal underscores the consequences of inadequate state aid shared with municipalities.
- TENNESSEE legislators have filed legislation that would reduce the state sales and use tax rate from 7 to 6 percent.
- VIRGINIA lawmakers are debating a bill that would create a tax credit for parents who homeschool or send their children to private schools.
- Although its sponsor does not expect his bill will pass this year, a WASHINGTON lawmaker has introduced a proposal to allow cities and counties to shift reliance off of regressive sales and property taxes and onto progressive income taxes, so long as there is no overall tax increase.
- WYOMING‘s revenue committee is sponsoring a bill that would impose a 1 percent real estate transfer tax on the sale of property over $1.5 million.
What We’re Reading
- The Commonwealth Institute in Virginia explains how Gov. Glenn Youngkin’s tax proposals would reduce critical state revenues and largely exclude families with the lowest incomes.
- The Kentucky legislature’s plan to replace income tax revenues with a higher sales tax is under scrutiny in an op-ed from the Kentucky Center for Economic Policy in the Northern Kentucky Tribune.
- The Republican-Times in Iowa discusses the state’s stagnant population and lays out the inevitable consequences of tax cuts on education, state parks, the environment and families.
- Pew’s State Fiscal Health initiative shared six key fiscal principles for crafting better state budgets for the long term. Forecasting revenue and spending using a “current services” approach for at least three years into the future are among their recommendations.
- Stateline kicked off their State of the States 2022 series this week with articles on state policy approaches to electric vehicles, Covid-19, and elections. Installments on essential workers and abortion are forthcoming.
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