State Rundown 1/26: Wealth Taxes Drawing Interest Early in Legislative Sessions

Bills are moving and state legislative sessions are picking up across the country, giving elected officials the opportunity to consider two distinct paths when it comes to tax policy. The first path inevitably makes state tax systems more regressive, while simultaneously sacrificing important revenue. For example, Wisconsin legislators have introduced their latest attempt to deeply cut taxes to the tune of $2 billion annually, of which most of the savings would flow to high-earning Wisconsinites. Meanwhile, states such as Vermont and Massachusetts are seeking to address the remaining regressivity in their tax systems by considering taxes on wealth and high-income earners. Vermont lawmakers are weighing an additional income tax bracket on incomes over $500,000 and a new tax on capital gains assets, while Massachusetts will consider allowing municipalities to enact local “mansion” taxes on expensive real estate transactions. In Tennessee, a legislator is attempting to eliminate the sales tax on groceries and enact worldwide combined reporting. These policies will make tax systems more progressive and equitable while raising needed revenue.

Major State Tax Proposals and Developments

• The WISCONSIN legislature unveiled a $2 billion tax cut plan. The Republican-backed proposal would quadruple the size of the state’s second income tax bracket – which is taxed at 4.4 percent – allow retirees to exempt $75,000 of retirement income for single filers and $150,000 for married filers from income tax, expand the state’s nonrefundable child and dependent care credit, and increase the state’s nonrefundable married couple credit. – NEVA BUTKUS
• The bipartisan tax cut plan supported by KANSAS Gov. Laura Kelly has been introduced to the statehouse. The bill would increase the state’s homestead exemption, eliminate taxes on Social Security income, increase the standard deduction, and immediately eliminate the sales tax on groceries that is currently phasing out, among other policies. The plan would cost the state $1.3 billion over four years. It’s being weighed alongside a Republican-backed tax cut plan that’s centerpiece is a 5.25 percent flat income tax. In a recent analysis ITEP found that the cut would provide an estimated $875,000 windfall to Kansan billionaire Charles Koch. – NEVA BUTKUS
• VERMONT lawmakers introduced two revenue-raising tax bills to tackle income inequality while meeting the revenue needs of the state. The first would enact a 3 percent tax on households earning more than $500,000. The second would tax capital gains on assets above $10 million. – MILES TRINIDAD

Governors’ Annual Addresses and State of State Speeches

• MICHIGAN Gov. Gretchen Whitmer’s address focused on programs to lower costs for Michiganders. She called on lawmakers to create a $5,000 tax credit for family caregivers to cover nursing services and counseling, provide $1.4 billion to add to the state’s housing stock, provide universal pre-K, make community college free to all high school graduates, and create a vehicle rebate program.
• MISSOURI Gov. Mike Parson delivered his final state of the state speech and he largely avoided proposing new tax policy. However, he did endorse several bipartisan tax credits aimed at children, including a non-refundable Childcare Contribution Tax Credit, worth 75 percent of a taxpayer’s payments for childcare; a non-refundable Childcare Assistance Tax Credit, worth 30 percent of a businesses’ payments for childcare for its employees; and non-refundable Childcare Providers Credits, worth all of a childcare providers employer withholding tax and 30 percent of capital expenses. However, each credit is capped at $20 million. The bill authorizes the cap to increase 15 percent annually if the maximum is reached, however, all increases must go to childcare deserts.
• NEBRASKA Gov. Jim Pillen demurred on tax specifics in his State of the State Address last week after his previous plan received very little support, promising vaguely to reduce property taxes by 40 percent by going after “special interest” sales tax exemptions. But he was clear that his ultimate goal is to slash funding for Nebraskans’ priorities more so than shift to different revenue sources, supporting a “hard cap” to ratchet down property taxes and asserting that “Nebraska government remains too big at every level.”
• While the NORTH DAKOTA legislature is not in session this year, Gov. Doug Burgum’s address called on lawmakers to eliminate the state’s income tax, echoing his calls from last year when he urged lawmakers to expand income tax cuts costing $358 million that were already signed into law. He also called for property tax cuts. However, he urged local governments to pursue the reform after the legislature provided about $5 billion last year. Burgum also announced that he will not be running for a third term as governor.
• VERMONT Gov. Phil Scott gave his annual budget address where he focused on affordability, public safety, and housing, and presented a budget that does not include new taxes or fees.

State Roundup

• The Anchorage Economic Development Corp. in ALASKA is pushing for a new 3 percent city sales tax. Most of the revenue (two-thirds) would be dedicated to property tax cuts, while the other portion would be reserved for public projects.
• The DISTRICT OF COLUMBIA Tax Revision Commission is back to the drawing board after certain appointees questioned the inclusion of a Business Activity Tax, a commonsense, more stable, “low-rate, broad base ‘value-added tax’ on gross receipts”.
• FLORIDA is advancing legislation that would make it more difficult for local governments to raise property taxes by imposing a supermajority requirement.
• The ILLINOIS legislature will consider enacting the state’s first Child Tax Credit. The policy would provide $300 per child for qualifying households.
• The IOWA House Appropriations Committee chair has expressed reservations towards reducing the state’s flat income tax rate below the currently scheduled final rate of 3.9 percent. Gov. Reynolds has proposed dropping that rate further to 3.5 percent by 2025.
• The Jefferson Parish Council in LOUISIANA has approved a ten-year $80 million property tax break for UBE Corp.’s planned chemical plant in exchange for nine full-time jobs that have an average salary of $55,000.
• MASSACHUSETTS lawmakers heard testimony late last week on Gov. Maura Healy’s plan to allow cities and towns to enact local “mansion” taxes on pricey real estate transactions. Boston and several other localities have asked for permission to create such taxes, which would raise funds to tackle affordable housing shortages. Meanwhile, Gov. Maura Healey approved a task force to look into how to better finance the state’s transportation systems.
• NEW YORK Gov. Kathy Hochul’s budget includes a revenue-neutral change to the state’s cannabis taxes, switching from a system based on potency to a simpler wholesale excise tax.
• A TENNESSEE lawmaker has proposed a cap on property tax increases. Specifically, local governments would be prohibited from increasing property tax rates if revenues would go up by 3 percent plus inflation in one year, or 6 percent plus inflation over 3 years. This would have prevented tax increases in numerous counties, municipalities, and special districts. The bill contains no offsetting revenue for local governments.
• Meanwhile, TENNESSEE lawmakers will consider a bill to eliminate the state’s grocery tax. Rep. Aftyn Behn, the bill’s sponsor, then proposes to offset some of the local governments lost funds by enacting worldwide combined reporting.
• UTAH‘s Senate Revenue and Taxation Committee gave its seal of approval to SB69, which will cut both the state personal and corporate income tax from 4.65 percent to 4.55 percent.
• Just after the US Supreme Court dismissed a legal challenge to WASHINGTON’s Capital Gains Excise Tax, opponents of tax fairness submitted signatures to potentially put repeal of the tax before voters in November. An initiative to repeal the state’s carbon tax has already qualified, and there are also efforts to create an opt-out of the state’s new long-term care insurance program and prohibit state and local income taxes.

What We’re Reading

• The New York Times reports on ten states where lawmakers are considering innovative ways to directly or indirectly tax the wealth of their richest households, highlighting policies under discussion in Vermont. The piece noted that 82 percent of Americans are bothered by the wealthiest not paying their fair share.
• Former U.S. Rep. John Yarmuth attacks the Kentucky GOP’s drive to eliminate the state’s income tax, calling for a focus on overall economic success. He especially criticizes corporate favoritism, pointing out that those states with so-called anti-growth tax policy, including New York, California, and New Jersey, are economic powerhouses with enormous concentrations of wealth.
• Many states restrict cities’ and counties’ authority to enact progressive local taxes. Examining this dynamic in Massachusetts, the American Prospect highlights how tax authority constraints can “blunt progressive impulses on the part of mayors” and hold back public investments.
• In an op-ed for the Albuquerque Journal, ITEP’s Carl Davis highlights the progress New Mexico lawmakers and advocates have made in turning the state’s tax code into one of the most progressive systems in the nation.

 

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