State Rundown 2/23: Temporary Surplus, Permanent Cuts

Several state legislatures are continuing to push ahead this year with significant tax cut packages that are regressive and would dramatically reduce revenues and leave states in a bad position should they experience another unexpected economic shock. In South Carolina, the House approved a $1 billion tax cut that would cut the top rate and reduce its six tax brackets to three. After having experienced the effects of the Great Recession, GOP leaders in the Palmetto State, at one time, expressed concern about the impact of big cuts but for some reason have no such worries this time around. Meanwhile, the Mississippi Senate took its turn crafting and passing its own tax cut plan, and though it isn’t as severe as the House plan, it will still dramatically cut revenues at a time when residents need their state’s public services to be functioning properly. Advocates on the ground in Massachusetts are also calling attention to Gov. Charlie Baker’s tax plan, which is being billed as providing breaks for renters, seniors, and low-income families, because the plan also includes a reduction in the tax rate on short-term capital gains and an increase to the threshold at which the estate tax would kick in. Lawmakers need to understand that the position their states are in is due, in part, to the rapid response from the federal government, and if history has taught us anything, it’s that that isn’t always guaranteed.

Major State Tax Proposals and Developments

• SOUTH CAROLINA legislators unanimously passed a $1 billion tax cut out of the House. Republicans and Democrats have praised the tax cuts as a win, but they have drawn criticism from advocates who do not buy the economic competitiveness argument and believe the funds would be better spent re-investing in education. – NEVA BUTKUS
• The MISSISSIPPI Senate passed an income tax cut bill that would phase out the 4 percent tax bracket, cut the grocery tax rate to 5 percent, and create a one-time rebate. Although the Senate plan is far less drastic than the House plan, it would still cut much-needed revenue at a time when Mississippi needs to prioritize state investments. – KAMOLIKA DAS
• A proposal in NEBRASKA backed by Gov. Pete Ricketts that would slash personal and corporate income taxes – predominantly for upper-income households and out-of-state corporate shareholders – is being filibustered in the legislature by proponents of tax fairness and fiscal responsibility. Meanwhile at the committee level, lawmakers are discussing an even more costly and regressive proposal to cut income taxes further and shift much of those taxes onto lower- and middle-income families through consumption taxes. – DYLAN GRUNDMAN O’NEILL
• Governors’ Annual Addresses and State of State Speeches
• Echoing priorities and commitments from his 2021 address, and highlighting priorities that he anticipates delivering on with the use of federal ARPA funds, Gov. Chris Sununu presented his State of the State address to NEW HAMPSHIRE last week.

State Roundup

• ALABAMA lawmakers passed a bill that would allow taxpayers to calculate their state income tax liabilities without accounting for federal child tax credit payments. Some articles have billed this change as a new child tax credit which somewhat misrepresents the policy since it actually just reduces taxable income.
• CALIFORNIA lawmakers are mounting one of the most serious efforts yet to enact a state-level wealth tax on the net worth of multi-millionaires and billionaires. The proposed False Claims Act would tax wealth in excess of $50 million at a 1 percent rate and in excess of $1 billion at an additional 1.5 percent, based in part on research showing the ultra-wealthy receive millions in income each year in the form of unrealized gains on their wealth.
• KENTUCKY Gov. Andy Beshear’s proposal to temporarily reduce the state’s sales tax is drawing criticism from Republicans who believe it throws the budget out of balance.
• MARYLAND House leaders introduced a package of tax cut bills that would exempt everyday products from the 6 percent sales tax including diapers, bottles, dental hygiene products, and medical devices.
• A bill to eliminate the state sales tax on groceries in MISSOURI passed unanimously out of the House Ways and Means committee.
• In OKLAHOMA, lawmakers advance a bill to give tax credits to companies that manufacture guns and rifles.
• A proposal in RHODE ISLAND to eliminate the state’s 35 cent per gallon gas tax for the remainder of 2022 has been referred to the state’s Senate Finance Committee for consideration.
• SOUTH DAKOTA lawmakers on the House Appropriations Committee advanced a bill that would reduce the sales tax rate from 4.5 percent to 4 percent. The sales tax was increased from 4 percent to 4.5 percent in 2016 at the governor’s urging, but a condition to getting it passed was that it would gradually be rolled back to 4 percent, which has yet to happen.
• Republican leaders in UTAH are proposing a constitutional amendment that would eliminate an earmark requirement for income tax revenue for public education and eliminate the sales tax on food.
• The VIRGINIA House and Senate released their respective two-year budgets over the weekend. While there are some areas of agreement such as the one-time rebate, there are several differences as well. For example, the Senate proposes a fully refundable 20 percent earned income tax credit (EITC) while the House plan would double the standard deduction.
• A proposal in WASHINGTON to fund infrastructure improvements in part through a 6-cent tax per gallon of fuel exported to neighboring states has received backlash including a direct response from OREGON Gov. Kate Brown, who asks Washington leaders to put the idea “back on the shelf.”
• After passing a 10 percent income tax cut bill, the WEST VIRGINIA House also just passed a $10 million bill that would reinstate the film tax credit.
• Republicans in WISCONSIN are pushing for a private school voucher expansion that the state’s education agency estimates will increase property taxes by $577 million.

What We’re Reading

• New Jersey Policy Perspective makes the case for a state-level child tax credit and analyzes different options for designing the credit.
• The American Prospect digs into the wave of new tax cut proposals and how state lawmakers are pointing to deceptive and fleeting surpluses to justify them.
• In commentary for the Missoula Current, Mike Nugent makes a compelling case for why Montanans should reject a proposed constitutional amendment that would place strict limits on property taxes. Though he acknowledges that the state is in need of property tax reform, Nugent explains that the initiative – which is styled after California’s Proposition 13 – would provide the most relief to the wealthiest homeowners and likely increase the burden of those in areas bordering urban population centers.
• Route Fifty covers of some of the ways the accelerated shift to remote work may cause problems for city governments that rely on commuters for revenue, for example from sales taxes, payroll taxes, and parking fees. They also provide some advice on how local governments can prepare and adjust.

 

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