February 10, 2022
February 10, 2022
While record state revenue surpluses have led to big pushes in red states like Mississippi, Idaho, Utah and West Virginia to make unnecessary permanent income and corporate tax cuts, Democrats are also getting in on the tax-cut mania. A hot idea many Democrats are latching onto is providing relief in the form of eliminating sales tax on groceries. Proposals have surfaced in Idaho, Oklahoma, Illinois, and South Dakota, and the Utah House of Representatives recently put an end to a Democratic plan to replace an income tax cut with cutting the sales tax on food. Additional tax cutting options being considered include cutting or eliminating tax on Social Security and military retirement income like in New Mexico and Michigan, which is also considering restoring their Earned Income Tax Credit (EITC) to its previous 20 percent rate. Many people around the country are still feeling the economic effects of the pandemic, and as legislators rush to provide aid some relief options need to be called out as being better than others, and targeted options that include those most vulnerable should be prioritized first.
Major State Tax Proposals and Developments
- Republicans in IOWA have released three tax-cut plans. All three plans phase in a flat personal income tax and exempt retirement income from taxes, while the Senate and Gov. Kim Reynolds’ plan also cuts corporate taxes. Democrats in Iowa state these plans disproportionately benefit high-income Iowans and have proposed expanding the state’s EITC and child and dependent care credit, instead. – NEVA BUTKUS
- The MISSISSIPPI House and Senate have recently proposed very different tax cut proposals. While the House plan would eliminate income taxes entirely and cost the state over $1.5 billion, the Senate plan would eliminate one of the two remaining income tax brackets and cost over $316 million annually. Both plans include cuts to the grocery tax and car tag tax. The Senate plan is preferable to the egregious House plan, but it would still result in unsustainable revenue losses. – KAMOLIKA DAS
- The WEST VIRGINIA House is likely to vote on a bill soon that would cut the state income tax by 10 percent, costing the state over $264 million in its first year of implementation, and also create a new fund specifically for further cuts. If passed, this bill would lead to major revenue losses that primarily benefit high-income West Virginians.
- A UTAH bill that will lower the income tax rate from 4.95 percent to 4.85 percent, cut Social Security taxes, and create a 15 percent non-refundable earned income tax credit passed the House and will now head back to the Senate for final approval. The vote also closes the door on the Democratic plan to replace the income tax cut with removing the sales tax on food. – MARCO GUZMAN
- This week, OKLAHOMA’s legislative session began and a bill to eliminate the sales tax on groceries—an issue that legislators have been proposing outside of session for months—has already advanced out of the Revenue and Taxation Subcommittee and is now in the full Appropriations and Budget Committee. The bill would only make groceries exempt from state sales tax, leaving the local sales tax on groceries in place. – BRAKEYSHIA SAMMS
- VERMONT’s House of Representatives passed a tax package that includes a targeted $1,200 state-level Child Tax Credit for children 6 and younger and an expansion of the income thresholds used for the state’s Social Security income tax exemption. – AIDAN DAVIS
Governors’ Annual Addresses and State of State Speeches
- CONNECTICUT Gov. Ned Lamont’s State of the State address featured his previously released tax cut plan—focusing on motor vehicle property taxes, enhancing an existing targeted state property tax credit, and speeding up scheduled retirement income tax breaks.
- OKLAHOMA Gov. Kevin Stitt delivered his State of the State address this week, where he called for an elimination of the sales tax on groceries and end to the income tax on military retirement benefits.
- OREGON Gov. Kate Brown delivered her State of the State address last week, emphasizing the need for investments in affordable housing, child care, and climate-related disaster preparedness.
- In ALABAMA, a Senate bill that would increase the standard deduction by $500 and $1000 for single and joint filers, respectively, will now head to the House of Representatives. Lawmakers are also moving ahead with different proposals for cutting the grocery tax. While one proposal would not offset the $500 million revenue loss to the education budget, two other bills would give voters the option of offsetting the revenue loss by capping federal income tax (FIT) deductions. The FIT deduction dramatically benefits the state’s top earners so this would be a progressive tax swap.
- ARIZONA GOP lawmakers asked the state’s high court, in a recent filing, to immediately rule on Proposition 208, noting that the trial court is delaying their ruling that could nullify the ballot measure.
- CALIFORNIA lawmakers could send residents $1,125 per person, up to $4,500 per family, under one rebate proposal being discussed. And the city of San Francisco may enact a tax on empty houses and condos to simultaneously discourage leaving them empty and raise revenue for homelessness services.
- DELAWARE Gov. John Carney signed legislation to exempt income taxes on unemployment benefits. A House bill that would nearly double the property tax credit for seniors is pending.
- A slew of tax cut bills are advancing in GEORGIA. A bill is moving through the Senate that would allow individuals and corporations to take advantage of a $100 million tax break for donations to law enforcement foundations. A different Senate bill would provide $2,500 per-person tax credits for donations to organizations supporting young adults who were formerly in foster care. Another House bill would provide a modest tax break to low-income renters.
- Advocacy groups in KENTUCKY are calling for the legislature to focus their efforts on cleaning up the expensive and wasteful exemptions for corporations in Kentucky’s tax code as opposed to slashing state income taxes.
- A new MARYLAND Senate bill would repeal the annual automatic gas tax increase legislation passed in 2013 and cost the state $37 million in FY23.
- Gov. Gretchen Whitmer in MICHIGAN is proposing a phase out of taxes on retirement income over the next four years in addition to an EITC expansion.
- NEBRASKA lawmakers rejected a proposal to force down school funding through a property tax growth cap, which would have been particularly hard on the state’s largest and most diverse school districts. Meanwhile, a severely regressive consumption tax proposal received a hearing in the Revenue Committee and appears unlikely to advance. Still on the table in the Cornhusker State are a proposal to bring down property taxes by increasing state school aid and personal and corporate income tax cuts that would primarily benefit high-income households and nonresidents.
- Recent polling in NEVADA suggests voters are likely to approve a tax increase on casinos for education funding and reject a sales tax increase for the same purpose. Both initiatives are subject to a legal challenge first that could remove them from the ballot.
- The Revenue and Taxation Subcommittee in OKLAHOMA advanced a proposal to eliminate the state’s corporate franchise tax to the full Appropriations and Budget Committee.
- OREGON’s legislative session is underway with the budget being the top priority, particularly as it relates to supports for workers and educators, response to climate change, and access to mental health care. One tax-related proposal would create a sales tax on luxury items to fund supports for low-income mothers and young adults transitioning out of foster care. This week’s revised revenue forecast likely means a larger “kicker” credit and perhaps calls to reform the design of the credit.
- PENNSYLVANIA Gov. Tom Wolf released an FY23 budget that would cut the state’s corporate net income tax rate from 9.99 percent to 7.99 percent with further percentage-point reductions in 2026 and 2027. The budget would also use $41 million to expand the use of education tax credits.
- Senate Republicans in RHODE ISLAND proposed suspending the state’s gas tax in 2022. The tax is currently set at 35 cents per gallon. And the estimated overall revenue loss is $150 million.
- In addition to a proposed $800 million cut to its top income tax rate, SOUTH CAROLINA is also pushing to waive state income taxes on military pensions which would cost the state $10 million.
- SOUTH DAKOTA Gov. Kristi Noem has yet to fully support any of the proposed bills that would reduce state sales taxes. The options range from a Republican effort to cut the rate from 4.5 percent to 4 percent to a Democratic plan to eliminate the sales tax on groceries.
- WASHINGTON’s current budget debate includes determining how much cannabis tax revenue to devote to people and communities harmed by the war on drugs. Gov. Jay Inslee’s proposed budget allocates $125 million to violence prevention, reentry services for the formerly incarcerated, legal aid, homeownership assistance, and other initiatives, though it is about half of what advocates initially hoped for.
- Gov. Evers of WISCONSIN has proposed spending part of the state’s $3.8 billion surplus on a caregiver credit that would provide $500 to Wisconsinites who provide unpaid care to a qualified, often elderly, family member.
What We’re Reading
- The thought leaders at Connecticut Voices for Children released a compelling report making the case for a Child Tax Credit in the state. Connecticut’s tax code includes some progressive components, but the authors point out that one of its key weaknesses is its lack of provisions that account for family size or childcare expenses, which a Child Tax Credit would help solve.
- A new blog by the Wisconsin Budget Project demonstrates the impact of a radical tax cut proposed by conservative business lobbyists. The proposal, which would eliminate income taxes and raise sales taxes, would result in a $78,122 tax cut for Wisconsin’s richest households. Meanwhile, Wisconsin’s poorest households would see little-to-no benefit or see a tax increase if income tax credits like the EITC are eliminated alongside the income tax.
- The West Virginia Center on Budget & Policy released an impactful blogpost highlighting how unsustainable and inequitable the House proposal to cut personal income taxes would be for most residents.
- Pew’s State Fiscal Health initiative covers the overlooked issue of states constraining city and county tax options, causing them to lean heavily on regressive and inadequate sources like consumption taxes and legal fees.
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