State Rundown 11/30: ‘Lame Duck’ December Could Have Major Tax Implications

As federal lawmakers begin their lame duck deliberations, the revival of the expanded child tax credit remains a strong possibility. The monthly payments, which can reach up to $300 per child, go a long way in helping provide financial stability for struggling families. ITEP, in collaboration with Columbia University, recently published a report for Share Our Strength highlighting the impact CTC expansion had on reducing child poverty in states across the country (see below for more details about our findings). In the states, meanwhile, lawmakers are equally busy planning for their upcoming sessions. The governor of Montana announced that his 2023 budget will include a refundable child tax credit and a cut to the state’s top marginal tax rate, and Utah legislators are considering another cut to their flat income tax. And keeping with the tax cut theme, Virginia’s governor also mentioned prioritizing cuts to corporate taxes.

Major State Tax Proposals and Developments

• MONTANA Gov. Greg Gianforte recently announced his 2023 budget proposal and it includes a $1,200 child tax credit for children under the age of six, a cut from 6.5 percent to 5.9 percent to the top marginal income tax rate, and $500 million in property tax cuts over two years.
• UTAH lawmakers are considering another cut to their flat income tax rate after projections show that the state could have a budget surplus in excess of $3 billion next year. The cut would bring the tax rate from 4.85 percent to 4.8 percent.
• VIRGINIA Gov. Glenn Youngkin is expected to prioritize budget amendments regarding tax cuts in the upcoming legislative session, including a $397 million taxpayer relief fund and cutting corporate taxes, but his goals will likely face opposition from the Democratic-controlled Senate.

State Roundup

• CALIFORNIA Gov. Gavin Newsom has proposed a windfall profits tax on oil companies.
• In a special session this week called by Gov. Ned Lamont, CONNECTICUT lawmakers enacted a package with several components. These include extending the state gas tax holiday through the end of this year and then phasing the tax back in over the first few months of 2023, extending fare-free bus service through March, and extending supports for energy assistance and essential workers.
• LOUISIANA’s first full year of legal sports betting resulted in $26.4 million in new revenue.
• MARYLAND’s Attorney General filed an appeal to a county court’s decision that struck down the state’s first-of-its-kind tax on digital advertising on tech giants such as Amazon, Facebook, Google, and Microsoft. The revenue from the tax was intended to go towards education funding.
• The chair of NEBRASKA’s Revenue Committee is already pushing to accelerate regressive income tax cuts passed last year, but more circumspect voices in the state are calling for a more prudent approach focused on ensuring that state funds are sustainable over time and are invested strategically in needs like housing, childcare, mental health, and rural infrastructure.
• In OKLAHOMA, the chairman of the Senate Appropriations Committee and some of his colleagues are hesitant to repeal the state’s portion of the sales tax.  They caution supporters of the sales tax cut to realize their booming economy won’t last forever. Instead, they need to recognize that the state will need to have enough revenue to pay for services to prevent them from being cut or eliminated. Gov. Kevin Stitt has bipartisan support for the sales tax cut.
• While SOUTH DAKOTA Gov. Kristi Noem campaigned on repealing the state’s 4.5 percent sales tax on food, after a previous proposal fell short in the 2022 legislative session due to concerns of replacing over $100 million in lost revenue, a grassroots organization is pushing for a ballot measure and constitutional amendment that would repeal the tax.
• In TEXAS, State Rep. Donna Howard filed a bill to exempt diapers from the sales tax. If the bill is passed in next year’s legislative session it would begin September 1, 2023.
• Republican leadership in WISCONSIN stated that a flat income tax and eliminating the personal property tax would be priorities for the 2023 legislative session.

 

What We’re Reading

• In collaboration with the Center on Poverty and Social Policy at Columbia University on behalf of Share Our Strength, ITEP recently released a report and summary blog showing how effective an expanded Child Tax Credit can be at reducing child poverty in every state. With this well-designed tool already at hand, states can act now to bring about greater economic security for families, healthier children, lessened racial inequities, and a sharp departure from the “upside-down” way in which most state and local tax systems ask more of low- and middle-income families than the wealthy.
• Stateline reports on an under-appreciated aspect of high inflation: government expenses are up too, including construction costs, which reduces how far state dollars and federal aid can go toward shoring up the nation’s aging infrastructure.
• The Lincoln Institute of Land Policy released a new paper on the relationship between property taxes and school funding. The report includes an overview of the relationship between the two and the problems with that funding structure. It includes case studies of five states (California, Massachusetts, South Carolina, Texas, and Wisconsin) to illustrate the complexities of the system. They then present several recommendations.

 

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