State Rundown 1/5: State Taxes Coming in Hot in New Year

The new year often brings with it new goals and a desire to take on complex problems with a fresh perspective. Unfortunately, that doesn’t always apply to state lawmakers when considering tax policy. As lawmakers begin to return to statehouses across the country, tax cuts look like they are once again high on their priorities list. In Kentucky, the House is determined to cut the state income tax rate, following a recent cut, and in Mississippi, tax cut debates are expected to ramp up quickly.

Fortunately, however, for you the reader, ITEP has recommitted itself to supplying states with not only new and updated reports and analysis, but an expansion of work on local tax issues led by Associate Director of Local Policy Kamolika Das. The new work will focus on providing accessible local analyses of potential tax changes, disaggregated data by race and ethnicity. Be sure to stay tuned for news on all the great things to come in 2023!

Major State Tax Proposals and Developments

• The KENTUCKY House is moving forward with their plan to cut the state’s income tax from 4.5 percent to 4 percent. Following directly on the heels of a first round of income tax cuts, the plan uses a temporary surplus to enact permanent tax cuts which mostly benefit the wealthiest Kentuckians.

State Roundup

• In ALABAMA, some form of tax rebates will be up for discussion this session. Legislators may also consider cutting or eliminating the grocery tax or reducing municipal occupational taxes that boost funding for local services. State legislators have already limited local officials’ ability to raise occupational taxes.
• In December, thought leaders in CONNECTICUT laid out the case for prioritizing tax justice in the state and a blueprint for how to do so. This week, Gov. Ned Lamont alluded to similar goals but sketched out a plan focused on middle-bracket income tax reductions, which would not improve fairness overall unless paired with some of the refundable credits, upper-income rate increases, and other suggestions laid out in the blueprint.
• GEORGIA‘s gas tax suspension will end on January 10, and Gov. Brian Kemp has signaled that he will not extend it further.
• HAWAII Gov. Josh Green’s administration is considering another round of rebate checks. This time, however, the aim of lawmakers is to help ease the impact of inflation on low- and middle-income families.
• IOWA legislative leaders are gearing up to debate property tax cuts and major changes to education school vouchers this session.
• Some INDIANA legislative leaders are considering how to eliminate their already low personal and corporate income taxes. They also discussed restructuring Indiana’s system of property taxes.
• KANSAS Gov. Laura Kelly kicked off a campaign in December to work with the legislature on ending the state sales tax on groceries by April, along with creating a three-day sales tax holiday on school supplies, and to increase the state income tax exemption on Social Security benefits.
• A debate on whether to exempt Social Security income from state tax has split some members of MINNESOTA’s Democratic-Farmer-Labor Party. A compromise solution could see the exemption partially rolled back but kept in place for wealthier residents, but DFL leaders have urged that a defection could put any major tax legislation in doubt.
• MISSISSIPPI legislators returned to the Capitol on Tuesday and tax cut debates are expected to take center stage this session. For months, the Lt. Governor has been pushing for tax rebates while the House Speaker has pushed for fully eliminating the state income tax, even though legislators passed a massive tax cut just last year that gradually phases in until 2026. On Tuesday, the House Speaker said that he would consider accelerating the tax cuts or cutting the top rate instead of full elimination. Given the state’s desperate need for education funding, as well as funding to address the state’s health care crisis and water crisis, these regressive proposals to reduce state revenue are irresponsible and shortsighted.
• NEBRASKA lawmakers are in familiar territory as their session begins, with some pushing for costly and regressive tax cuts to the income and inheritance taxes, others drawing a line in the sand insisting on still more property tax reductions, and some asking to prioritize long-term budget stability and investments in Nebraska’s families and economy over shortsighted headline-grabbing tax cuts.
• Attorneys in NEW HAMPSHIRE are seeking a state court ruling that would find the statewide education property tax (SWEPT) unconstitutional. Currently, some municipalities do not pay the full SWEPT rate while other municipalities do. The SWEPT raises $363 million per year and is directly appropriated to school districts without passing through the state’s treasury.
• Lawmakers in both NORTH DAKOTA and SOUTH CAROLINA are considering introducing legislation that would eliminate taxes on menstrual products. The states are among 22 states that apply the so-called tampon tax.
• In a recent interview, RHODE ISLAND Senate President Dominick Ruggerio spoke about 2023 legislative priorities. Ruggerio noted that a state child tax credit is a top priority but also expressed his opposition to a millionaire’s income tax.
• The WASHINGTON, D.C. Council recently approved a four-year increase of the city’s hotel tax–from 14.95 percent to 15.95 percent–to cover additional marketing costs aimed at helping increase domestic and international tourism.
• WISCONSIN legislative members have proposed exempting nearly all seniors 67 or older from personal income taxes. That would be on top of the $3.4 billion cut last year.

What We’re Reading

• Vox breaks down how prevalent regressive state taxes are and adds some details about how and why states are choosing to become tax havens for the ultra-wealthy to shelter their money without paying taxes.
• The Fines & Fees Justice Center released a new report that examines the use of regressive justice fees as a hidden tax to raise revenue.
• ITEP’s Eli Byerly-Duke recommends, “Alan Blinder’s A Monetary and Fiscal History of the United States, 1961-2021 is not light reading, but Blinder’s signature crisp prose is at its height. Covering both monetary and fiscal histories is no small order, but the necessity of connecting them is part of the point. Well worth a read for specialists or those with outside interest, Blinder’s personal involvement in parts of the history adds both color and perspective. Blinder is mostly fair although he lets some (Greenspan) off the hook too easily.”

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email.

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