State Rundown 11/2: Midterms on the Mind

Next Tuesday, voters will head to the polls to not only elect local and national leaders, but also let their voices be heard on a range of tax policy issues that could improve or worsen their state tax codes. As ITEP’s Jon Whiten writes, several state ballot measures “could make state tax codes more equitable and raise money for public services, or take states in the opposite direction, making tax systems less fair and draining state coffers of dollars needed to maintain critical public investments.” While some measures will have an immediate impact on tax collections, others have the potential to drastically reshape the democratic way in which certain tax policies are approved. In Colorado, voters will decide on the fate of yet another cut to the state’s flat income tax rate. Importantly, the vote comes on the heels of Gov. Jared Polis’s most recent budget proposal, which warns that the state needs to prioritize reserve funds in case of a possible economic downturn. Meanwhile in Arizona, a measure to impose a supermajority requirement for any tax-raising proposals could limit the state’s ability to respond to crises or fund other public services. Finally, in Massachusetts, a constitutional provision known as the Fair Share Amendment would impose a surcharge on households earning more than $1 million, and the revenue would go to support schools and transportation.

Major State Tax Proposals and Developments

• The GOP-led PENNSYLVANIA State Legislature passed a nearly $2 billion tax credit package, distributed over 25 years, that is intended to incentivize investments in the state by hydrogen producers, milk processors, and semiconductor manufacturers. The bill, referred to as the Pennsylvania Economic Development for a Growing Economy Program (PA EDGE), has been criticized due to its tax credits for non-net zero energy sources and being jammed through the legislature in the final days of its session. While Gov. Tom Wolf reportedly negotiated the deal with GOP leaders, it is yet to be signed by Wolf.

State Roundup

• Legislative leadership in ALABAMA plan to consider using the state surplus on rebate checks during the 2023 legislative session.
• CALIFORNIA revenue for the first quarter of fiscal year 2023 was $4.8 billion, or 11.1 percent below the state’s forecast. However, Finance Department spokesman H.D. Palmer indicates no changes to planned current year expenditures.
• COLORADO Gov. Jared Polis released his budget proposal for fiscal year 2023-24, warning that the state has very little room for new spending and will need to strengthen reserve funds in case of a potential national economic downturn.
• Middle- and low-income CONNECTICUT residents are receiving $42 million in benefits this week from the state’s temporary Earned Income Tax Credit (EITC) increase. These payments add further targeted income supports to payments that went out already this year to childcare workers and households with children. Progressive lawmakers and advocates hope to make some or all of these policies permanent in the upcoming session.
• Thanks to federal pandemic aid and a progressive income tax that raises funds from the rich households who have gotten even richer in recent years, CONNECTICUT lawmakers are able to deliver the assistance mentioned above while entering the next budget cycle with a full Rainy Day Fund.
• Reform enacted in 2016 to LOUISIANA’s Industrial Tax Exemption Program – a corporate property tax giveaway – have resulted in $760 million of additional tax revenue for local governments. Pro-business lobbyists criticized the reforms claiming they would stifle economic growth, but a new report demonstrates that industrial capital investment is 50 percent higher post-reforms.
• MARYLAND’S digital advertising tax on companies making more than $100 million, the first of its kind, was struck down by a county circuit court judge. The tax was intended to go towards education funding. The state’s attorney general may appeal the ruling.
• Gov. Tate Reeves of MISSISSIPPI is once again pushing for a full elimination of the state’s personal income tax, a drastic resource shift that would eventually cost the state $525 million in revenue.
• NEW YORK residents who qualified for the state’s Earned Income Credit and Empire State Child Credit received checks last month averaging $270, reflecting $475 million in payments approved earlier this year in the state budget.
• The first-of-its-kind WASHINGTON State long-term care insurance program and the payroll tax to fund it will begin in July 2023. The program will provide state residents with access to important services like in-home care and rides to medical appointments, and is projected to be solvent through June 2098.

What We’re Reading

• The Boston Globe’s editorial board announced its support for Question 1—also known as the Fair Share Amendment—in the upcoming Massachusetts election. The board reasoned that the amendment would make the state’s flat income tax system fairer and allow the state to make investments when needed. (Paywall)
• The Observer sheds important light on the universal dearth of working-class representation in state legislatures and explores the causes and consequences of this dramatic overrepresentation of monied business interests. Only 1.1 percent (81 out of 7,300) of state lawmakers have current or recent working-class backgrounds, while more than half are business owners, lawyers, or judges.
• ITEP Research Director Carl Davis and Senior Fellow Matthew Gardner expose some of the deep flaws and internal contradictions in the Tax Foundation’s “State Business Tax Climate Index,” which amounts to “simply a poor measure of states’ economic potential…[in which] the best climate is simply the one that asks the least of large, highly profitable corporations and other businesses. And that’s hardly what leads to the best economy for workers or families or businesses themselves.”

 

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