Just Taxes Blog by ITEP

State Rundown 1/8: States Need Clear Tax and Budget Policy Vision in 2020

January 8, 2020

Happy New Year, readers! The Rundown is back to our usual weekly schedule as state legislative sessions and governors’ budgets and State of the State Addresses begin in earnest. Here’s to clear-eyed 20-20 vision guiding state tax and budget decisions in 2020! So far this year, the harm of Colorado’s TABOR policy and Alaska’s lack of an income tax are coming into focus in big ways. Utah advocates are hoping the benefit of hindsight will help convince voters to overturn a recently enacted tax overhaul. Lawmakers in states including Iowa, Maryland, and Virginia can clearly see a need for revenues, but are looking at mostly regressive options so far. And eagle-eyed lawmakers are looking to the tax policy horizon for innovative ways to tax foreign corporations doing business in Michigan and ways to fund infrastructure needs in the era of electric vehicles in Utah.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

  • COLORADO for the first time will experience an income tax cut due to TABOR restrictions, which Gov. Jared Polis is celebrating while at odds with others in his party—evidenced in part by recent ballot initiatives filed to return the state to a graduated income tax. Expect to hear more about this tomorrow as Gov. Polis gives his State of the State Address. — LISA CHRISTENSEN GEE
  • Concerned citizens in UTAH are working to collect 116,000 signatures before a January 21 deadline in order to put a referendum on the ballot in November 2020 to overturn the tax overhaul legislation enacted by the legislature during special session this past December. — LISA CHRISTENSEN GEE

Governors’ Budget Proposals and State of the State Speeches

  • IDAHO Gov. Brad Little gave his State of the State Address this past Monday, promising that his budget recommendations would balance the books while avoiding surprise tax increases and eliminating the grocery tax and continuing to strengthen education investments. See the full speech here and lawmaker responses here.
  • Gov. Andrew Cuomo provided his State of the State Address, laying out a 2020 agenda for the state of NEW YORK. Among other things, his speech touched on prioritizing paid sick leave, an expansion of the state’s child tax credit, legalizing marijuana, and eliminating the state’s “pink tax.”

State Roundup

  • ALASKA Gov. Mike Dunleavy remains reluctant to consider new taxes. The state faces a $1.5 billion budget deficit for the coming fiscal year. In the absence of new taxes, a balanced budget will require cuts to vital public services, cuts to the state’s Permanent Fund dividend, spending from savings, or a combination of the three.
  • Among recent tax changes that went into effect in CALIFORNIA on January 1, 2020 are new laws on the employment (and tax status) of gig employees and the exemption of diapers and menstrual products from the sales taxes (through Dec. 31, 2021).
  • Extending the sales tax to online purchases could raise $670 million in FLORIDA. Acting to take advantage of that revenue potential could be particularly helpful with state economists warning of an “intense slowdown” in property tax collections.
  • Record numbers in ILLINOIS: the first day of legal recreational cannabis sales brought in $3.2 million in taxable receipts, the strongest start among states yet; and new Census data shows the state has lost population for the 6th year in a row.
  • INDIANA legislators are debating how to use about $291 million of unexpected tax revenues. A proposal to use it for one-time teacher pay bonuses was rejected in committee, and the current plan will use the money to pay up front rather than borrow for several college construction projects, which could save the state $135 million in interest in the long run. Gov. Eric Holcomb is expected to touch on the debate in his annual address on January 14.
  • IOWA lawmakers are considering more tax changes. The state could use its $470 million surplus for tax cuts, though Rainy Day Fund savings and mental health funding will compete for those dollars. Lawmakers are also discussing raising the sales tax rate and using part of those revenues to buy down other taxes, which would likely be a regressive tax shift.
  • MARYLAND lawmakers are planning to fund the first few years of improvements recommended by the “Kirwan Commission” on education reform using only tax modernization measures like expanding the sales tax to online sales and services. They’ll also look at exempting diapers from the sales tax.
  • Local jurisdictions in MICHIGAN are testing in court whether an economic nexus found adequate for taxing in Wayfair offers a sufficient tax nexus for collecting local income taxes from foreign businesses.
  • Local governments in MICHIGAN and NEW MEXICO are suing their respective states over claims of failure to distribute appropriate shares of local revenues.
  • Lawmakers will consider at least four proposals to improve funding for MISSOURI’s roads and other transportation infrastructure by updating the gas tax for the first time in more than 20 years. Three of the proposals would ultimately go to a vote of the people, while a fourth is small enough to not require that step.
  • NEBRASKA legislators returned to session today, but many of them have already been working for weeks on plans to cut property taxes and restructure state school aid. Reaching consensus on those issues has been elusive for years, and this year’s effort will take place in a short session during which they’ll also need to address funding needs for overcrowded prisons and the aftermath of last year’s devastating floods.
  • NEW YORK lawmakers, faced with a multi-billion budget gap, weigh revenue raisers and spending cuts. Non-profit leaders from across the state call for policy changes to raise substantial revenue and address poverty. The governor’s budget proposal is expected by January 21st.
  • A SOUTH CAROLINA legislator is proposing to create a homestead exemption to help low-income seniors stay in their homes.
  • Also in UTAH, state policymakers are talking about moving away from gas taxes and towards more tolls and fees for funding infrastructure budgets as revenue from fuel taxes continue to decline.
  • VIRGINIA Gov. Ralph Northam and lawmakers are looking at gas taxes and tobacco taxes this year to raise revenue for roads and health care. The Commonwealth Institute explains that these options are regressive and should be paired with a refundable credit like the Earned Income Tax Credit (EITC) if adopted.
  • Billionaire Bill Gates recently blogged his views on how tax codes should be improved, including strengthening federal income and estate taxes and implementing those taxes in his home state of WASHINGTON.
  • Lawmakers in WEST VIRGINIA are back in action for the year. They continue to weigh the future of the state’s business inventory and equipment tax. The Legislature pushed for repeal last year; advocates for maintaining the tax point to more reductions in vital services.
  • WISCONSIN’s Senate Majority Leader is talking about wanting to enact a property tax cut in 2020. Options may include increasing General State Aid to cause a decrease in local levies or restricting local government’s abilities to raise taxes through referenda.

What We’re Reading

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