Just Taxes Blog by ITEP

State Rundown 10/7: States Looking Inward for Needed Revenue

State Rundown 10/7: States Looking Inward for Needed Revenue

October 7, 2020

ITEP
.ITEP Staff

The biggest news for state and local fiscal debates this week was that federal fiscal relief to help with their pandemic-induced revenue crises is effectively off the table for at least another month. But if there is a silver lining to this federal inaction, it may be that it coincides with New Jersey’s success filling part of its own revenue shortfall through a millionaires tax, as well as with prominent wealth managers admitting that their rich clients don’t flee to other states in response to such taxes (see “What We’re Reading”). Combined, these three developments could encourage state leaders elsewhere to step up and enact progressive tax increases of their own to fund shared priorities while improving their tax codes and economies.

Major State Tax Proposals and Developments

  • OHIO ordered General Motors Co. to repay $28 million in public subsidies for not maintaining the commitment to keep its Lordstown plant open. The closure, which took place last year, violated the terms of two economic development agreements totaling $60 million in tax credits. – AIDAN DAVIS

State Roundup

  • At the last minute, ARKANSAS legislators approved using $165 million in CARES Act dollars to keep the unemployment insurance trust fund solvent and avoid an unemployment insurance tax increase on employers next year.
  • CALIFORNIA lawmakers passed a budget over the summer with major funding cuts they hoped to reverse once federal fiscal relief was passed. With this week’s news that President Trump is ending those relief talks for at least another month, the state may have to go through with those funding cuts to schools, higher education, the court system, and more.
  • CONNECTICUT Gov. Ned Lamont is proposing to make an initial $200 million dent in the state’s $2 billion revenue shortfall primarily through a mixture of funding cuts, budget reserves, and hiring restrictions. Meanwhile the state’s higher education institutions are asking for $69 million to assist with their budget crisis.
  • FLORIDA voters will vote on half a dozen constitutional amendments this year including: gradually raising the minimum wage to $15 per hour by 2026; making it more difficult for voters to pass future constitutional amendments by requiring two separate supermajority votes on the same ballot question; extending the “Save Our Homes” tax benefit by a year at a cost of $10.2 million; and extending a property tax discount for veterans to their spouses.
  • Because of errors in accounting software, the GEORGIA Department of Revenue misallocated $240 million in sales tax revenue that had been due to local governments. The error misallocated taxes between late 2015 and the end of 2018.
  • The LOUISIANA House Appropriations Committee advanced a bill that would require local governments to notify the legislature’s budget committee if they trim police department funding by 10 percent or more. In response, the municipality may be unable to receive state construction dollars or a portion of sales tax dollars reserved for local government agencies. In other news, the House passed a tax credit for broadband service providers in rural areas and state senators began moving legislation to keep the impending bankruptcy of the state unemployment trust fund from triggering business tax increases.
  • MASSACHUSETTS could face a revenue shortfall from anywhere between $2.7 billion to $5.33 billion in fiscal year 2021. State groups are calling upon corporations and the state’s wealthiest to pay more in taxes to support the state’s economic recovery.
  • MISSISSIPPI lawmakers concluded the 2020 legislative session last Friday after redirecting millions of unspent CARES Act dollars towards landlords who lost money during the moratorium on evictions ($20 million), farmers ($13 million), hospital intensive care units ($10 million), state-run nursing homes for veterans ($10 million), and other directives.
  • A report out of MONTANA by researchers at the Bureau of Business and Economic Research at the University of Montana found that a 20 percent tax on sales of legalized recreational cannabis sales—as outlined in initiatives CI-118 and I-190 on the November ballot— could raise up to $52 million a year.
  • After six total years of wrangling, and almost two years after voters took to the polls to circumvent the legislature to approve it, NEBRASKA residents will finally begin benefiting from expanded Medicaid this month.
  • NEW JERSEY leaders continue to draw praise for advancing tax fairness through a millionaires tax and Earned Income Tax Credit expansion to childless adults aged 21-24.
  • The OKLAHOMA Tax Commission published a report concluding that the recent U.S. Supreme Court decision in McGirt v. Oklahoma could reduce income tax and sales and use tax collections because the state is not authorized to tax income earned from tribal citizens residing on tribal land.
  • TEXAS sales tax revenue, the state’s largest source of funding, is 6.1 percent less than collections in September 2019. The hotel occupancy tax is also approximately 37 percent less than this time last year.
  • The VIRGINIA House and Senate are expected to negotiate a final version of the budget over the next few days. Both versions rely on funding from the CARES Act, but neither dip into the state’s $1 billion reserves to fund additional services.
  • WEST VIRGINIA legislators are questioning the lack of protocols and transparency in Gov. Jim Justice’s disbursement of over 4,000 CARES Act Small Business Grants.

What We’re Reading

  • The New York Times further debunks the myth that personal income tax rates drive high-income individuals to move from one state to another, interviewing multiple wealth management professionals with first-hand knowledge affirming what the data have always shown: wealthy families and business owners are attached to their communities through personal and economic connections that are stronger than the specious appeal of lower marginal tax rates elsewhere. Politico echoes this finding by reporting that billionaire David Tepper has returned to New Jersey after his much-ballyhooed 2015 move to Florida. And our own research shows how this plays out at the level of state economies, as the states without personal income taxes have done no better than the states with the highest income tax rates.
  • As the revenue crisis facing state and local government continues and federal fiscal relief remains uncertain, Governing takes a step back and explains the crucial role state and local governments play in the broader economy.
  • The Center on Budget and Policy Priorities makes the case for states to tax wealth and the fruits of wealth to raise needed funds for Covid-19 response and recovery.
  • Route Fifty reports on the softening job recovery numbers around the nation and continued losses for teachers.
  • Stateline checks in on unemployment claims, which are on the rise in most states.
  • The District of Columbia Council Budget Office released a series of summary reports highlighting changes to the FY21 budget and the District’s response to the pandemic. One key development is the District’s new locally funded tax credit to support affordable housing beginning in FY22, modeled after the federal Low-Income House Tax Credit (LIHTC) program.

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