State Rundown 12/14: Tax Policy Debates Ramp Up for 2024

Even as revenue collections slow in many states, some are starting the push for 2024 tax cuts early. For instance, policymakers in Georgia and Utah are already making the case for deeper income tax cuts. Meanwhile, Arizona lawmakers are now facing a significant deficit, the consequence of their recent top-heavy tax cuts.

There is another path for states to take. And whether we’re talking about wealthy families, multinational corporations, or superstar athletes, location decisions are rarely driven by tax rates. Latest case in point: baseball’s Shohei Ohtani, who decided to remain in California, with its progressive personal income tax, by signing a record-breaking 10-year, $700 million contract with the Dodgers. Reminder: Athletes like Ohtani pay state income tax to the location where their games are played, meaning that the bulk of his tax bill will be in the Golden State for home games in Dodger Stadium.

Major State Tax Proposals and Developments

• After previously expecting a $10 million surplus for the fiscal year, a budget forecast from ARIZONA‘s Joint Legislative Budget Committee is now predicting a $400 million deficit due in large part to the newly implemented 2.5 percent flat income tax, lagging sales tax revenues, and a significant increase in school voucher spending. – MARCO GUZMAN
• GEORGIA Gov. Brian Kemp announced plans to prioritize an acceleration to the state’s income tax cuts. In 2022, lawmakers passed legislation to consolidate the state’s graduated personal income tax structure to a flat tax and phase-down the new flat rate until it reaches 4.99 percent in 2029. Gov. Kemp’s proposal would bring the rate to 4.99 percent a year earlier. – NEVA BUTKUS
• UTAH Gov. Spencer Cox and state lawmakers have announced their budget and legislative priorities for the upcoming year, which include setting aside $160 million for yet another cut to the state’s flat income tax rate from 4.65 percent to 4.55 percent and an expansion of the state’s Child Tax Credit to include children up to 5 years old. – MARCO GUZMAN

State Roundup

• The CALIFORNIA Legislative Analyst’s Office estimates the state is presently facing a $58 billion budget deficit from fiscal year 2023 to fiscal year 2025.
• Cannabis revenues in ILLINOIS generated $452 million for the 2023 fiscal year according to the state revenue department, which exceeds the $316 million in alcohol revenue collections.
• MARYLAND legislative budget analysts are projecting the state to face a budget shortfall of $322 million for the upcoming legislative session, and the shortfall is expected to continue growing in the following years.
• In a recent ruling, NEW HAMPSHIRE courts found that the state’s per pupil allocation is too low and unconstitutional. If the ruling remains intact after an expected appeal by the state, the state legislature would need an additional $537 million to fund public education. In response, a Democratic lawmaker is drafting legislation that would restore the state’s interest and dividends tax, which is currently set to be eliminated in 2025.
• NEW YORK lawmakers have proposed repealing the property tax exemptions of large private universities in New York City, with the funds directed to the public City University of New York. The proposal—which would raise $327 million—would require both passage in the legislature and a statewide ballot initiative to amend the state constitution.
• The OHIO Senate passed legislation amending the recreational marijuana legalization program that Ohio voters approved in November. The legislation would increase the sales tax rate on marijuana from 10 percent to 15 percent and allow counties to levy a 3 percent sales tax to fund entertainment, arts, and culture.
• A group representing KENTUCKY cities have sued Airbnb, alleging that the firm has not paid occupancy taxes in numerous jurisdictions in Kentucky.
• In WASHINGTON, the Seattle City Council budget committee discussed a proposal to enact a local capital gains tax, building on the state provision taxing gains over $250,000. The Seattle committee also recently approved an increase in the city’s progressive JumpStart payroll tax to fund support services for public school students.
• WEST VIRGINIA’s Senate Minority Leader proposed a refundable tax credit based on family’s childcare expenses.

What We’re Reading

• A new report by the Center on Budget and Policy Priorities quantifies the extensive tax cuts that have swept the states in recent years. The research finds that twenty-six states cut their personal and (in some cases) corporate income tax rates over a three-year period, resulting in $124 billion in collective lost revenue by 2028. Many states, including Nebraska, have pointed to the report to identify the damage done.
• The North Carolina Budget & Tax Center lays out of the benefits of a strong Earned Income Tax Credit. The piece also explains how North Carolina prohibits local governments from using this powerful anti-poverty tool at the expense of low- and moderate-income families.

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