State Rundown 2/16: Spending Priorities Emerge as the Votes Are Counted

State lawmakers have been busy working out deals and negotiating how best to use excess revenues, and as the votes are beginning to come in, spending priorities are becoming clearer. New Mexico has its eye on creating a child tax credit, expanding its Social Security exemption, and raising teacher salaries, while the governor of Maine wants to strengthen existing refundable tax credits and provide one-time payments to residents. Meanwhile, states with their sights set on incredibly regressive tax cuts like West Virginia and Oklahoma want to slash or even eliminate the personal income tax. Indiana recently ended the chances of a $1 billion tax cut passing after worries over using the temporary surplus on permanent cuts sunk in and it failed to gain support from the governor and Senate Republicans. And it seems the reality of major tax cuts and budget implications also played a factor in Utah lawmakers’ decision to approve a modest income tax reduction over deeper cuts.

Major State Tax Proposals and Developments

• A Senate committee in INDIANA has killed a $1 billion tax cut bill that proposed to reduce the individual income tax and personal property taxes for business. While tax cuts have been championed by House Republicans, Gov. Eric Holcomb and Senate Republicans expressed concern over using the surplus for permanent tax cuts. Instead, they plan to prioritize $125 cash payments to Hoosiers and paying down the state’s $10 billion pension debt. – NEVA BUTKUS
• A bill to gradually phase out OKLAHOMA’s income tax passed the House Appropriations and Budget Finance Revenue and Taxation Subcommittee this week. House Bill 3635 would set a flat income tax rate of 4.75% in 2023 and reduce it by another 0.5% when revenue increases by at least 5%. – BRAKEYSHIA SAMMS
• Following a public address, MAINE Gov. Janet Mills released a supplemental budget that includes proposals to boost existing refundable tax credits (the earned income tax credit and the maximum credit allowable under the Property Tax Fairness Credit) and provide one-time $500 stimulus checks to Mainers. Mills’s proposal, among other things, would also increase the state’s Budget Stabilization Fund. – AIDAN DAVIS
• The WEST VIRGINIA House voted in favor of cutting the state’s personal income tax by 10 percent and the bill now goes to the Senate. The initial cut would cost the state an estimated $264.5 million in its first full fiscal year. – KAMOLIKA DAS
• UTAH Gov. Spencer Cox signed a tax cut package into law that will reduce the state’s flat tax from 4.95 percent to 4.85 percent, create a 15 percent non-refundable earned income tax credit, and expand the Social Security deduction. – MARCO GUZMAN
• Although the session ends at noon on February 17, it is looking increasingly likely that NEW MEXICO will pass a $385 million package that includes expanding the limit for those liable for tax on Social Security income and a child tax credit of up to $175 for families.

Governors’ Annual Addresses and State of State Speeches

• Gov. Tony Evers of WISCONSIN called upon legislators in his state of the state to provide support and financial relief to Wisconsin workers and families. His proposed plan includes sending every Wisconsin family $150 per person, providing $130 million in child and caregiver credits, $750 million for public education and $25 million to freeze tuition in the University of Wisconsin system.
• In his State of the State speech, NORTH DAKOTA Gov. Doug Burgum said the state had done its part to help provide relief and help ease the burden of property taxes on residents, and called on local governments to do more.

State Roundup

• ALABAMA‘s standard deduction increase is still pending in the House but in the meantime, the House passed a bill that would exempt certain ARPA benefits from state income taxes such as enhanced federal child tax credits, earned income tax credits, and dependent care tax credits. Next weekend, the state will hold a sales tax holiday for severe weather preparation equipment.
• On Thursday, the FLORIDA House will debate a wide range of tax breaks that includes 14-day sales tax holidays for hurricane season, school supplies, and entertainment around Independence Day. The package also includes a number of other tax cuts such as reducing the sales tax on mobile homes. Gov. Ron DeSantis’s proposed $1 billion gas tax cut is not in the package.
• The GEORGIA House passed a revised budget that includes pay boosts to state employees and $1.6 billion in one-time rebates.
• KENTUCKY Gov. Andy Beshear has announced a $1.2 billion tax relief plan which includes vehicle property tax relief and a temporary sales tax reduction until June 2023.
• The MARYLAND House again debated adopting combined reporting, which would lessen corporate tax avoidance and help small businesses compete with large multistate corporations.
• Senators in MICHIGAN have approved a tax cut bill that would reduce the corporate income tax rate to 3.9 from 6 percent and reduce the individual income tax rate to 3.9 from 4.25 percent.
• In an effort to make homeownership more affordable for families, the League of MINNESOTA cities is proposing a new state tax on corporations who own four or more single-family properties.
• A bill to exempt cryptocurrency from state, county and local property taxes has been filed in MISSOURI.
• A MONTANA group of conservatives have begun pushing for a constitutional amendment that would limit how fast property taxes grow and how much owners would have to pay. Constitutional Initiative 121 is modeled after California’s Proposition 13, which passed in 1978.
• NEBRASKA lawmakers last week scaled back the state’s inheritance tax even further by exempting people under the age of 22, and this week they ended an effort to revamp state school aid and reduce property taxes. They are still debating measures to cut personal and corporate income taxes for high-income households as well.
• Arguments to remove the tax cap from NORTH CAROLINA’s constitution are being pursued by NAACP. The cap which would limit the legislature from ever raising the state income tax rate above 7 percent was passed in 2018, along with an amendment to require voters show photo ID at the polls. Those votes took place with gerrymandered maps that were later found to be unconstitutional.
• A bill to eliminate OHIO’s gross receipts tax, also known as the commercial activities tax, is being revisited again this session. House Bill 234 would phase out this tax on businesses over five years.
• On Tuesday in OKLAHOMA, a bill to eliminate the state grocery tax passed the Senate Finance Committee and heads to the Senate Appropriations Committee next. Similar to the bill that passed a House Appropriations subcommittee last week, the Senate bill would not prevent local governments from levying a tax on groceries.
• With tax collections continuing to exceed projections, SOUTH CAROLINA Gov. Henry McMaster has announced a plan to accelerate income tax cuts. The new plan would cut the top rate to 6.5 percent and consolidate the remaining lower tax brackets to 3 percent.
• Today marks the halftime ‘Crossover Day’ for VIRGINIA lawmakers. Both the House and Senate have proposed bills to reduce the state’s grocery tax. While the House version would also remove the local option, the Senate bill would retain the 1 percent option for local governments. Other proposals such as doubling the state standard deduction and one-time rebates are also still on the table.

What We’re Reading

• Michael Mazerov at the Center on Budget & Policy Priorities makes a strong case for why Mississippi needs to avoid drastic tax cuts. He points out that economic growth requires more state investment, not less.
• Lucy Dadayan at the Tax Policy Center urges states to exercise caution even amid relatively rosy revenues. Inflation and the likelihood of an economic regression to the mean are two of her five key points.
• State Senator Zach Wahls of Iowa pushes back on Gov. Reynolds’ tax cut plan in the Des Moines Register, reiterating that the cuts will benefit the Governor’s wealthy donors while doing little for Iowa families.
• A recent report from Policy Matters Ohio discusses how tax policy changes over the past 17 years have benefitted rich Ohioans at the expense of the state’s lowest income households.
• New Hampshire Fiscal Policy Institute makes the case for using surplus revenues to prioritize investments and support a more inclusive recovery.

 

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