State Rundown 2/22: Some Top-Heavy Tax Cut Proposals are Getting the Chop

With many state legislatures now in full swing with activity heating up, some tax cut proposals have lost steam. There’s a bit of déjà vu in Kansas where Gov. Laura Kelly vetoed, for the second year in a row, legislation to replace the state’s progressive income tax with a flat tax. Again, the legislature attempted but failed to override the veto. In Virginia, both chambers of the General Assembly rejected Gov. Glenn Youngkin’s budget proposal that would have reduced income taxes while partially offsetting the cuts with an increase to the state sales tax. However, the fate of a tax cut package in Wisconsin remains uncertain as Gov. Tony Evers has not yet indicated whether he will sign tax cuts totaling $2 billion that passed along a party-line vote with only Republican support.

Major State Tax Proposals and Developments

• KANSAS Gov. Laura Kelly vetoed legislation that would have created a flat rate personal income tax and the legislature failed to override the veto. This most recent iteration of a flat tax proposal would have replaced Kansas’ current progressive income tax brackets with a 5.25 percent flat income tax, costing the state upwards of $300 million annually and providing 70% of the overall benefit to the top 20% of Kansans. – NEVA BUTKUS
• The OKLAHOMA Senate passed a bill eliminating the state’s sales tax on groceries on a bipartisan vote of 42 –2. The change, if passed, will result in roughly $400 million in revenue loss to the state. The change will benefit all Oklahomans but will be felt most dramatically by families with modest incomes. Although many have called for other tax cuts, Senate Pro Tempore Greg Treat has ruled out further cuts this year. – ELI BYERLY-DUKE
• The WISCONSIN Senate has approved a tax cut package, which now moves to Gov. Tony Evers’ desk. The plan includes cuts to the personal income tax, additional tax exemptions on retirement income, an expanded nonrefundable child and dependent care credit, and an increase to the state’s married persons’ credit. In total, the plan would cost the state $2 billion in fiscal year 2025. – NEVA BUTKUS

Governors’ Annual Addresses and State of State Speeches

• Gov. J.B. Pritzker of ILLINOIS released his annual budget which includes numerous tax policy proposals. Some proposals are intended to soften the blow of the state’s projected $900 million shortfall, such as the increase to the sports wagering tax from 15 to 35 percent, continued limit on the Corporate Net Operating Loss Deduction, and the cap on the sales tax retailers’ discount. Gov. Pritzker is also proposing elimination of the state’s 1 percent sales tax on groceries and creating a credit for children (essentially a targeted boost to the state’s EITC) geared toward families with young children under three.

State Roundup

• The GEORGIA legislature will consider a bill that would limit contributions to the state’s rainy-day fund, and instead steer surplus revenues towards income tax cuts.
• Newly elected Gov. Jeff Landry of LOUISIANA rolled back the job creation requirement for the state’s Industrial Tax Exemption Program which allows companies to receive enormous local property tax exemptions for industrial projects. Gov. Landry has also removed the requirement that these exemptions receive approval from local taxing authorities who would be directly impacted by the exemption.
• In MISSOURI, a St. Louis lawmaker has introduced legislation to expand the city’s one percent individual income tax to include grants of corporate shares. Presently only wage and salary earnings are subject to tax, but a court has ruled that St. Louis may tax stock awards.
• NEBRASKA lawmakers heard testimony this week from multiple proponents supporting a bill to create a state Child Tax Credit that would start at $1,000 per child under 7 years old and phase out for higher-income households. There were no opponents.
• NEBRASKA legislators are also considering creating a film tax credit and eliminating the state’s inheritance tax.
• In PENNSYLVANIA, Philadelphia’s city council president is calling for a commission to explore possible reforms to the city’s tax system in light of “today’s socio-economic realities, including the uneven post COVID-19 pandemic recovery among communities of color and the end of the federal COVID-19 stimulus programs.” A similar panel advised city policymakers two decades ago.
• VIRGINIA’S House and Senate appropriation committees released their versions of the state budget proposal, which largely rejects Gov. Glenn Youngkin’s $1 billion proposal that would have reduced income taxes by 12 percent and increased the state sales tax from 4.3 percent to 5.2 percent, among other things. Instead, both budget bills redirect the $1 billion in income tax cuts to other priorities, such as public education. However, both chambers did include Youngkin’s proposal to expand the state’s sales tax to include digital goods.
• WASHINGTON lawmakers will allow two tax-related initiatives – one to repeal the state’s new Capital Gains Excise Tax, and one to create an opt-out from its long-term care plan and accompanying payroll tax – to go before voters on the November ballot. They will hold hearings on a third tax-related initiative – to ban state and local income taxes entirely – and may then offer alternatives to voters.

What We’re Reading

• Adam Freedman of Tennessee Lookout investigates the biggest likely beneficiaries of the state’s proposed corporate tax cut. The corporations are those who own large amounts of property in the state and include some of Tennessee’s largest firms. The top three—Nissan, Fedex, and Brown-Forman (who own Jack Daniels)—each own hundreds of millions of dollars worth of property and generate large profits.
• Christine Wen and coauthors at Missouri Independent discuss the costs of special corporate tax breaks in Kansas City Missouri. They estimate that between 2017 and 2023 the Kansas City school district alone lost $273 million in much needed revenue. The district—which was unaccredited by the state from 2011 to 2022—lost far more than neighboring districts with a wealthier and whiter student body; Those districts have not chosen to give out nearly as many special corporate tax breaks.

 

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