State Rundown 2/20: February and Regressive Tax Cuts, The “Meanest Moons of Winter”

Tom Robbins called February “the meanest moon of winter, all the more cruel because it will masquerade as spring, occasionally for hours at a time, only to rip off its mask with a sadistic laugh and spit icicles into every gullible face, behavior that grows quickly old.” Observers of state fiscal debates might think he was writing about similarly tiresome regressive tax cut proposals, which recently succeeded in Arkansas and advanced in North Dakota despite improved public understanding of the upside-down nature state tax systems, ineffectiveness of supply-side trickle-down tax cuts, and importance of investing in education. But like February (“as useless as the extra r in its name”), seemingly endless anti-tax crusades do come to an end and give way to brighter days and better policy. North Dakota lawmakers still have a chance to reject the current tax-slashing proposal, and progressive policy options remain on the table in many states.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

• ARKANSAS lawmakers passed a tax cut for the wealthy of which more than 76% goes to those making over a million dollars in the state, while also rejecting a bill to create a state earned income tax credit at 10% of the federal credit. — LISA CHRISTENSEN GEE
• The NORTH DAKOTA House has advanced a proposal to slowly phase out all personal and corporate income taxes in the state and thus relying even more heavily on volatile oil and gas tax revenues. — DYLAN GRUNDMAN

Governors’ Budget Proposals and State of the State Speeches

• CONNECTICUT Ned Lamont released his first budget today. It includes electronic highway tolls, a range of sales and excise taxes (a win for low- and middle-income families, it did not include an end the sales tax exemption on groceries), elimination of the state’s gift tax and a $250 business entity tax, an estate tax threshold change, and restoration of the state’s $200 property tax credit to all filers. Additionally, the budget proposes a $15 minimum wage and the creation of a paid family and medical leave program.
• Gov. J.B. Pritzker presented his first budget in ILLINOIS today, revealing plans to boost education funding and tax recreational marijuana (which the legislature needs to first legalize), tax e-cigarettes and vaping, and legalize sports betting. Raising the personal and corporate income tax rates are not part of his plan for the coming fiscal year, but the governor promised a big push for a progressive income tax ahead.
• Last week MICHIGAN’s Gov. Gretchen Whitmer delivered her inaugural State of the State address, highlighting three critical priorities for public investment under her administration, including fixing “the damn roads,” bolstering funding for education, and ensuring everyone in the state has access to clean water.
• MINNESOTA Tim Walz’s budget proposal prioritizes increased spending for education and health and human services, as well as raising the gas tax by 20 cents a gallon to fund improvements to infrastructure projects.

State Roundup

• Following a veto by Gov. Doug Ducey that pushed back against further tax cuts in response to federal conformity, ARIZONA Republican lawmakers continue to move similar bills.
• In other ARIZONA news, the House Education Committee has signed off on allowing voters to determine whether they want to increase the state’s current 0.6-cent sales tax to a full penny to fund public education. This proposed tax, which would hit lower income families the hardest, comes as bills to extend aid to poor Arizona families fail to get hearings.
• Lawmakers are considering proposals to lower the sales tax on food in KANSAS this week.
• NEBRASKA legislators continue to hold hearings and debates on a wide array of bills pertaining to both property, sales, and income taxes. One particularly damaging proposal would phase down the top rates for both corporate and individual income taxes while also increasing an existing property tax credit, resulting in a regressive tax shift off of high-income households and onto lower- and middle-income families. In contrast to the Kansas proposal above, one bill would tax groceries in order to generate revenue for property tax reductions.
• NEVADA lawmakers are considering reworking the state’s school funding formula this year.
• Following a recommendation by his advisory commission, OHIO’s Mike DeWine will seek a gas tax increase in some form. While details are yet to be worked out, he has expressed interest in tying the tax to increases in inflation. The state’s 28-cent-a-gallon tax has not been increased since 2005.
• VERMONT lawmakers, on the other hand, are not planning to take up proposals for a gas tax increase this session.
• VIRGINIA Ralph Northam has signed the legislature’s tax compromise into law despite the efforts of advocacy organizations to improve the bill and bring it more in line with Northam’s own stated goal of devoting the remainder of his term to advancing racial equity.
• WEST VIRGINIA teachers rallied at the state capitol this week, protesting a bill that would allow the first charter schools in the state. The bill, while tied to pay raises and more nurses and school staff, includes steps to privatize public education. This action comes nearly a year after a walkout that launched a nine-day strike in February 2018.
• WYOMING’s lodging tax proposal, which would create a 5 percent lodging tax, advances to the state’s Senate. The corporate tax bill, however, failed to get a committee vote and did not make its way out of committee.

What We’re Reading

• Taxing the wealthy is a popular idea among voters, the New York Times reports. One way to do that? Tax capital gains, which according to Bill Gates, is one of the best ways to tap “big fortunes.”
• Route Fifty reviews some of the ways states are preparing to respond in the event of another federal shutdown, noting that states are only able to address some of the many issues created in these events.
• Governing covers state efforts to find a federal solution to the “race to the bottom” that can happen when states are pitted against each other to lure companies with tax subsidies.
• The DISTRICT OF COLUMBIA Office of Revenue Analysis has an informative new report out exploring the effects of a 2015 expansion to the district’s EITC for workers without children in the home.
• While federal and state income tax rates have been on the decline in OHIO, local income taxes have been going up. More than one-fourth of Ohio’s cities and villages have increased their income tax rates since 2011 to make up for local government cuts, which were done in part to fund state income tax cuts.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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