February 15, 2023
February 15, 2023
This week, a fresh bouquet of tax proposals was delivered by state lawmakers, but not all of them have left us with that warm, fuzzy feeling in our stomachs. Here’s a breakdown of some of the plans we love and don’t love:
- We love you:
- Lawmakers in Maryland are pushing for more transparency on corporate tax returns, and while we would never invade your privacy, we wouldn’t mind taking a peek if the information were made public.
- We love like you:
- The governor of Wisconsin released a tax plan that includes expansions to vital refundable tax credits that will go a long way in helping struggling families. The plan would also limit the capital gains exclusion for wealthier residents. And although receiving gifts is one of our love languages, the governor’s inclusion of an income tax cut has left us a bit skeptical, since using temporary surplus revenues on permanent tax cuts could leave the state vulnerable to economic shocks.
- We love you not:
- The Iowa governor recently expressed her interest in eliminating the income tax by the end of her term in office, which has left us saying, “it’s not us, it’s you…who wants to give a massive tax cut to wealthy residents and have a tax structure that relies primarily on regressive consumption taxes.”
Major State Tax Proposals and Developments
- NEW MEXICO Gov. Michelle Lujan Grisham announced legislation that would reduce the state’s gross receipts tax rate from 5.125 percent to 4.625 percent and create a deduction for services sold to other businesses. — MARCO GUZMAN
- WISCONSIN Gov. Tony Evers has proposed a package of tax changes that would reduce state revenues by $1.2 billion over two years. For individuals, Evers proposes a 10 percent tax reduction for single filers earning less than $100,000 ($150,000 for married files), expanding the state Earned Income Tax Credit, expanding the Child and Dependent Care Tax Credit, creating a new caregiver tax credit, and additional cuts for seniors and recipients of federal aid. For businesses, Evers proposed eliminating the business personal property tax (and transferring equivalent state funds to localities to compensate) and expanding the refundable share of the research credit. Although his proposals are mostly reductions in revenue, he also proposed a progressive revenue raiser that would limit the long-term capital gains exclusion to exclude the highest-income earners. — ELI BYERLY-DUKE
- An ALABAMA legislator plans to reintroduce a bill that would phase out local occupational taxes. Currently, over two dozen cities levy the occupational tax to support essential services. State legislators passed a law in 2020 restricting cities from implementing new occupational taxes without legislative approval.
- ARKANSAS legislators are set to pass a bill that would prohibit local jurisdictions from enacting income taxes. The bill already passed the House of Representatives in early February and cleared the Senate Revenue and Taxation Committee last week. State preemption of local income taxes undermines local decision-making and hurts localities’ ability to serve their communities at the best of times, but this would be especially harmful if legislators eliminate state income taxes and there is dramatically less shared revenue for municipal aid.
- A GEORGIA bill backed by Gov. Brian Kemp that would provide income tax rebates of $250 for single filers and double that for joint filers was recently approved by a House subcommittee.
- IOWA Gov. Kim Reynolds indicated at a Washington D.C. event that her goal is to eliminate Iowa’s personal income tax by the end of her term in 2026. Although the measure would prevent urgently needed investments, such as in the state’s education and health systems, Reynolds intends to deliver a major tax cut focused on Iowa’s wealthiest.
- The KANSAS legislature scheduled hearings this week on two flat tax proposals: HB 2061, which would create a 5 percent income tax on individuals and corporations, and SB 169, which would create a flat tax rate of 4.75 percent for individuals.
- MARYLAND lawmakers held a hearing on a corporate tax transparency proposal that would require publicly traded corporations to disclose on their state tax returns their effective tax rate, how the rate was calculated, and the impact of any credits, deductions, and adjustments.
- MICHIGAN Democrats’ plan to provide $180 rebate checks is in limbo as the legislation needs immediate effect to be granted in order for the rebates to be immediately issued, which requires two-thirds support from the Senate, otherwise the legislation cannot take effect until 90 days after the legislature adjourns. With Democrats controlling 20 of 38 seats, the legislation would require Republican support to issue the checks before the April 18 tax deadline while also preventing a 2015 trigger law that would lower the income tax from 4.25 percent to 4.05 percent.
- A MISSISSIPPI bill was introduced last week that would cut the state’s 7 percent grocery tax rate in half. Many state legislators are discussing state income tax elimination, even though grocery tax cuts would be far less costly and benefit the state’s lowest-income residents. A recent poll also found that most Mississippians favor suspending the grocery tax over eliminating the state income tax.
- The NORTH DAKOTA Senate passed legislation that would give parents with household incomes below $120,000 a tax credit for day care costs. The credit would be the greater of 40 percent of the credit allowed under the federal Child and Dependent Care Credit program or 10 percent of the credit allowed under the federal Child Tax Credit.
- OHIO Gov. Mike DeWine formally introduced his budget proposal, which included a $2,500 tax deduction for parents and an elimination of the state sales tax for critical infant supplies, such as diapers, cribs, and wipes. The budget also included doubling the state’s tax rate on winnings from sports betting, which would increase the tax from 10 percent to 20 percent.
- Under a much less balanced approach, members of OHIO’s GOP leadership unveiled their priority bills, which include creating a flat state income tax of 2.75 percent while exempting the first $26,050 in income. The top-heavy tax cut would significantly decrease state revenue, so the legislation would offset the cost by eliminating $1.2 billion in payments to schools and local governments. It would also decrease property taxes from 35 percent to 31.5 percent while also eliminating a provision requiring the state payments to cover a portion of Ohioan property taxes when the state raised income taxes in 1983.
- A list of bills, including one to cut property taxes, have been short-listed and will be a priority in the TEXAS Senate during the legislative session.
- UTAH legislative leaders have narrowed their sights on eliminating the state sales tax on food, but only if voters approve the removal of a constitutional provision that explicitly guarantees funding for education. Two bills that would get rid of the food tax have recently been introduced.
- WEST VIRGINIA lawmakers are continuing to negotiate a potential compromise between competing visions of a substantial tax cut. Both the House and Senate have passed bills with sizable, top-heavy cuts, but have not yet settled on a package to send to Gov. Justice.
What We’re Reading
- Pew researchers shed light on state and local infrastructure needs and the level of home-grown and federally-provided funds to meet them, noting that current “commitments will not be enough to keep pace with the growing backlog of needed repairs, or the significant upfront investments required to modernize core public infrastructure systems,” particularly considering inflation-driven cost increases and supply chain issues.
- GeekWire offers an overview of the effort in Washington State to improve on the most inequitable state tax code in the country by enacting a wealth tax, as well as some of the obstacles that have so far caused Congressional and state-level efforts on this front to fall short.
- Governing previews issues to watch in 2023 state and federal tax and budget debates, including attempts to pass regressive tax cuts now before the economy inevitably slows, and redoubled efforts to shore up revenues and enhance tax fairness with progressive taxes on the wealthy, particularly if a true recession sets in this year.
- The West Virginia Center on Budget & Policy breaks down the Senate’s recent tax proposal, which focuses heavily on the wealthiest residents. And, they put the measure in the context of the state’s temporary surge in tax revenue from the energy sector. Instead of offsetting (for now) a tax cut, the Center proposes a sustainable investment in coal and gas communities themselves.
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