February 14, 2018
February 14, 2018
This Valentine’s week finds California, Georgia, Missouri, New York, Oregon, and other states flirting with the idea of coupling to various components of the federal tax-cut bill. Meanwhile, lawmakers seeking revenue solutions to budget shortfalls in Alaska, Oklahoma, and Wyoming saw their advances spurned, and anti-tax advocates in many states have been getting mixed responses to their tax-cut proposals. And be sure to check out our “what we’re reading” section to see how states are getting no love in recent federal budget developments.
— Meg Wiehe, ITEP Deputy Director, @megwiehe
States Still Unsure about Federal Coupling
- Georgia Gov. Nathan Deal detailed his plan for reacting to the federal tax-cut bill this week. He proposes to increase Georgia’s personal and dependent exemptions by 25 percent and allow residents to choose between the state standard deduction or itemized deductions (currently they must take the state standard deduction if they do so on their federal return even if itemizing their state deductions would reduce their taxes), while coupling to other itemized deductions changes in the federal tax-cut bill. Overall the proposal would improve the fairness of the Georgia tax code, but would also nullify the $1 billion annual revenue gain the state could see otherwise as a result of the federal bill.
- New York’s Gov. Cuomo, in an effort to circumvent limits on the deductibility of state and local taxes as a result of federal legislation, proposed an optional 5 percent payroll tax and two state funds that would allow taxpayers to “donate” their taxes in support of education and health care. Additional details on the plan will be made available later this week.
- Lawmakers in the Oregon Senate are trying to ensure that federal tax reform doesn’t mean a large, unintended tax cut for business owners at the state level.
- California‘s proposed workaround to the new $10,000 federal cap on state and local tax deductions is destined for failure according to many current and former IRS and Treasury officials.
- Missouri legislators have a lot to consider regarding the impacts of the federal tax-cut bill too.
Budget Shortfall Solutions Playing Hard to Get
- Oklahoma lawmakers failed to reach the three-fourths majority needed to pass the “Step Up Oklahoma” plan that would have raised $581 million in much needed revenue. Oklahomans now brace for deep spending cuts.
- With the majority of tax increases off the table, Wyoming lawmakers weigh what to do about a looming $684 million deficit.
- Lawmakers in Alaska are considering just how much of the state’s Permanent Fund investment earnings they should tap to fill the $2.5 billion deficit.
Tax Cut Proposals Received Tepidly
- Iowa Gov. Kim Reynolds released her tax plan this week, proposing to cut income tax rates – particularly at higher incomes – increase the standard deduction, eliminate the alternative minimum tax, subsidize private schools through tax-free savings accounts, and partially couple to the federal tax-cut bill’s deduction for “pass-through” businesses, among other tax cuts. Reynolds’s plan also phases out the state’s deduction for federal income taxes and counts on online sales tax revenues and revenue “triggers” to pay for the cuts. So far, others in the state are critical that the plan favors high-income Iowans and skeptical that the numbers truly add up.
- Louisiana lawmakers have been called into special session following Mardi Gras, though the governor isn’t sure he’s going to have the cooperation he needs to pass meaningful tax reform. Recent twitter talks don’t bode well on this front.
- The Missouri State Auditor’s office recently completed a year-long investigation to diagnose why the state’s finances are suffering despite multiple years of job growth and low unemployment, concluding that years of tax cuts and business subsidies have pushed costs to the local level and that the state is ill-prepared for an economic downturn as a result. Auditor Nicole Galloway warned that the state is at risk of following in the footsteps of neighboring Kansas if it continues slashing taxes despite its already precarious finances.
- Despite these warnings, two competing proposals to cut and shift taxes are being considered by Missouri lawmakers. Gov. Eric Greitens’s plan would significantly cut personal and corporate income tax rates, create a small nonrefundable Earned Income Tax Credit (EITC), and offset the revenue losses through an assortment of smaller measures. The other leading proposal would similarly cut income taxes while raising the gas tax, which would help infrastructure funding but leave a major hole in the general fund.
- In his opening remarks at the start of Arkansas’ legislative session, Gov. Asa Hutchinson announced he plans to push for a reduction in the state’s top income tax rate for those making during the 2019 legislative session. Arkansas Advocates for Children and Families explains why this is problematic from both a budgetary and tax fairness perspective. And the proposal isn’t getting very enthusiastic reception from the state’s tax reform commission, which is focused on a wider set of priorities.
- There’s a flurry of new tax bills under consideration in Idaho.
- The Florida House is considering a tax-cut bill – similar to those proposed by Gov. Rick Scott in recent years – that would reduce business taxes, expand the state’s use of sales tax holidays, and effectively funnel public dollars into private schools through a tax credit scholarship program.
- Wisconsin Gov. Walker has the support of Assembly leadership to push a one-time $100 child rebate and a sales tax holiday. Senate leadership is less sure.
Other States Getting Fiscal
- Nebraskans ♥ Taxes: recent polling in Nebraska showed very strong support for improved funding for services like health care, K-12 schools, and infrastructure, as well as for raising revenue for those services through tax increases on high-income residents, high-value estates, corporate profits, and tobacco products.
- Legislation is moving in the Arizona House to extend the state’s education sales tax, Prop 301, for another eight years to continue the $643 million funding source.
- Mississippi legislators are now considering diverting sales tax revenues to help address the state’s roads funding shortfall, but the proposal would only add about $40 million for roads, would not guarantee the money every year, and would reduce funding available for other priorities.
- Virginia lawmakers are considering a bill that would target the western part of the state with a regional gas tax increase to help fund improvements to Interstate 81 as well as a proposal that would exempt certain companies and their employees from income tax in only the southwestern part of the state.
- South Dakota revenues are exceeding projections so far this fiscal year by 2 percent.
- Nebraska lawmakers are considering a local option income surtax this week as a way for local voters to reduce property tax reliance.
- Last week Arizona’s Senate passed a bill that would allow residents to use Bitcoin or other cryptocurrencies to pay their income taxes.
- Massachusetts lawmakers are considering a proposal that would regulate and tax daily fantasy sports operators in the state by charging fees and imposing a 15 percent tax on the gross revenue of the companies.
- In Colorado, the Denver Chamber of Commerce is leading an effort to get a state sales tax increase on the ballot to fund infrastructure improvements and the Oil and Gas Conservation Commission has approved a tax increase to help fund environmental clean-up efforts.
- An effort in Wisconsin to close the “dark stores” loophole that big-box retailers have used to drastically lower their property tax contributions will likely be put on hold for the year.
What We’re Reading…
- Any state policymaker pondering the best use for a revenue increase resulting from the federal tax-cut bill need only look at this week’s news to see that this particular “windfall” is a sign of a major storm to come. Route Fifty summarizes how President Trump’s infrastructure plan is based on shifting costs to states and localities. Stateline adds impending federal Medicaid cuts to the list of fiscal woes already facing states. Governing reviews multiple ways states will suffer from the new federal budget deal, and how President Trump’s proposal also makes environmental protection a local responsibility.
- The Center on Budget and Policy Priorities provides fresh analyses of state Earned Income Tax Credits (EITCs) and how EITCs work together with minimum wage policy, as well as an update on related debates happening now in multiple states.
- The Center on Budget and Policy Priorities also weighs in on misguided state policies requiring supermajority votes for tax increases. A bill to create just such a requirement is being considered in Florida this year.
- StateNet review how “blockchain” technology is likely to affect state and local governments.
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