Just Taxes Blog by ITEP

State Rundown 1/28: EITC Efforts a Welcome Contrast to State Tax Tug-of-War

January 28, 2021

Efforts to deliver and improve targeted tax credits to support low- and middle-income families proved to be unifying in Washington and Oregon, welcome developments in an otherwise divisive week in state tax debates. For example, Mississippi advocates hoping to end the state’s regressive grocery tax are up against a governor and many lawmakers pulling in the opposite direction by trying to eliminate its income tax. After Arizona residents approved an income tax increase to improve education funding, policymakers there are seeking to reverse course by slashing taxes instead. And North Dakota lawmakers are considering converting their graduated income tax into a regressive flat tax while their counterparts in Virginia seek to add some progressivity to their nearly flat tax.

Governors’ Annual Addresses and State of State Speeches

  • HAWAII’s Gov. David Ige’s State of the State address reflected on the hardships brought on by the Covid-19 pandemic and pivoted to making the case for a more robust digital economy where Hawaii’s workforce can complete globally.
  • In his State of the State address, MISSISSIPPI’s Gov. Tate Reeves echoed top lawmakers’ misguided claims in calling for the elimination of the state’s income tax despite growing income inequality and an increased demand for public services during the pandemic-driven recession.
  • Other recent speeches with less tax content included those by DELAWARE Gov. John Carney and MISSOURI Gov. Mike Parson.
  • A full list of scheduled addresses is available here, including those to come soon in ALABAMA, ALASKA, MICHIGAN, MONTANA, RHODE ISLAND, and TEXAS.

Budget and Covid-19 Response News

  • HAWAII lawmakers, faced with a $1.8 billion revenue shortfall and an expectation that state revenues will not return to pre-Covid-19 levels until 2024, are hesitant to increase taxes. The shortfall will need to be made up through new tax revenue or cutting government spending at a time when government assistance is in high demand.
  • MAINE’s Gov. Janet Mills submitted a proposed budget change aimed at supporting families and businesses which includes the extension of many tax benefits. This week, the Maine Center for Economic Policy also released a blueprint of tax policy solutions aimed toward building a stronger, fairer future for Maine residents.
  • MINNESOTA Gov. Tim Walz released his two-year COVID-19 recovery budget, which includes $750 to low-income residents, capital gains and corporate income tax increases, a new top rate for high-income earners, and reinstating the estate tax exclusion at $2.7 million.
  • Multiple bills have been filed in MISSISSIPPI to eliminate the state’s grocery tax which brings in roughly $265 million a year and falls most heavily on the state’s lowest-income residents. Meanwhile, the governor and legislative leaders have been pushing for elimination of the state’s personal income tax under the guise of (heavily debunked) “supply-side” tax cuts.
  • A NEW MEXICO bill that would give a $600 rebate to those making less than $31,200 and give businesses affected by the Covid-19-related fiscal crisis a one-time gross receipts tax holiday from March to June has been endorsed by the Senate Tax, Business and Transportation Committee.
  • VERMONT Gov. Phil Scott’s budget proposal includes a range of one-time investments, but little in terms of long-term strategies to address inequities in the Green Mountain State.

Other Major State Tax Proposals and Developments

  • Several Senate Republicans in ARIZONA are proposing an additional $250 million tax cut on top of the governor’s already proposed $200 million tax cut. Unlike the governor’s plan, which would increase in cost to $600 million over three years, the lawmakers’ cuts would be for one year only. – MARCO GUZMAN
  • Republicans in KANSAS are once again pushing for a bill that would lower state revenues by $620 million over three years if enacted by allowing taxpayers to itemize deductions on state filings, regardless of how they filed federally, and would decouple from provisions that required businesses to pay state tax on profits brought back from overseas. – MARCO GUZMAN
  • A bipartisan group of lawmakers is banding together in WASHINGTON State to implement a Working Families Tax Credit that would deliver needed help to low- and middle-income working families. The $500 credit, with additional amounts for families with children, would go to families eligible for the federal Earned Income Tax Credit (EITC) and immigrants currently missing out on the federal credit because they file taxes with an Individual Taxpayer Identification Number (ITIN). – DYLAN GRUNDMAN

State Roundup

  • Lawmakers in CONNECTICUT continue to propose progressive improvements that would raise funding for shared priorities by taxing the state’s richest residents, including bills introduced this week to implement a statewide mansion tax and a bill to add a 1 percent surcharge on some capital gains income exceeding $500,000 for individuals. Gov. Ned Lamont has said he has “no interest in broad-based tax increases,” signaling his opposition to some or all of these efforts.
  • DELAWARE’s State Auditor estimates the state could raise $43 million per year by legalizing and taxing recreational cannabis.
  • Democrats in GEORGIA are looking to do an audit of the state’s various tax credits and are also exploring increasing the state tobacco tax.
  • NEBRASKA’s OpenSky Policy Institute demonstrates in a recent report how adding a cap on property tax growth would be a “flawed approach to a complex issue” of school finance and would lead to many districts struggling to continue funding their K-12 schools. In another report, the group shows how a proposed scholarship tax credit would drain state revenues to support public schools and would be one of the most generous such private school subsidies in the nation.
  • Proposals in NEVADA to raise badly needed school funding through sales tax gaming tax increases are likely to head to voters in 2022 after key lawmakers stated they don’t plan to take up the proposals in the legislature.
  • NEW YORK Gov. Andrew Cuomo has proposed extending the state sales tax to Airbnb stays and basing cannabis taxes on THC content, but continues to avoid proposals to raise significant revenue through higher taxes on the state’s richest households.
  • A NORTH DAKOTA lawmaker has introduced a bill that would replace the state’s graduated income tax with a 2 percent flat tax.
  • OREGON Gov. Kate Brown’s workgroup on improving the state’s Earned Income Tax Credit (EITC) has issued a report, summarized by state experts here, that recommends several enhancements. The group recommends including immigrants currently missing out on the credit because they file taxes with an Individual Taxpayer Identification Number (ITIN) and also making those families whole for the federal EITC they are currently excluded from. They also recommend expanding and increasing the credit for workers without dependents and boosting the base credit for all families.
  • The UTAH Senate approved a bill that would reduce income taxes on Social Security and military retirement income.
  • VIRGINIA legislative leaders in both houses are taking pro-active steps to study the state’s nearly flat income tax, which currently applies its top rate to taxable income starting at only $17,000, and recommend improvements to be pursued next year.

What We’re Reading

  • Stateline’s “State of the States 2021” series kicked off recently, so far including installments on states’ racial equity efforts, public health issues, and supports for families in need.
  • Route Fifty’s outlook for state legislative debates this year highlights Covid-19 responses, revenue needs, and the importance of federal aid.
  • CNBC weighs in on the trend of states with progressive taxes on high-income households outperforming other states during the pandemic due to the “K-shaped economy” in which those households are continuing to profit while lower-income families struggle, and notes that other states are looking to adopt more progressive taxes in response.
  • The Center on Budget and Policy Priorities continues to explicate why aid to states and localities should be a core component of federal Covid-19 response.
  • Governing looks back at the US Supreme Court’s decision to enable states to collect online sales taxes and how that revenue has proven vital in the pandemic-induced downturn.

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