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State Rundown 2/8: Flowers, Chocolates, and Tax Cuts for the Wealthy?

February 8, 2024

While we were hoping to get progressive tax policy wins for Valentine’s Day, many state lawmakers have another idea in mind. Untargeted tax cut plans continue to move through legislatures across the country. Iowa lawmakers have proposed a slow phase-out of their state individual income tax using one-time resources from a newly established trust fund. And in Nebraska, the governor’s attempt at replacing property taxes with a higher reliance on regressive sales taxes is struggling to get off the ground. Maybe next year we’ll finally get what we really want for Valentine’s Day: policies that lead to equitable and adequate state tax systems. Now that’s our love language.

Major State Tax Proposals and Developments

  • Republican leadership in IOWA released a plan to slowly phase-out the state’s individual income tax using one-time money. The bill would bring the state’s newly created flat tax to 3.65 percent in 2027 and continue to phase it down using the “Iowa Taxpayer Relief Trust” which would be managed by the Iowa Public Employees’ Retirement System. The trust would receive an initial transfer of $2.6 billion, and each year 5 percent of the trust would be used to reduce the individual income tax rate by a commensurate amount. – NEVA BUTKUS
  • The WISCONSIN Joint Finance Committee advanced the latest tax cut package proposed by Republicans. Included in the package is a personal income tax cut, tax cuts on retirement income, an expansion of the nonrefundable child and dependent care credit, and an increase to the state’s married couple credit. The total tax cut plan would cost the state $2 billion annually. – NEVA BUTKUS

Governors’ Annual Addresses and State of State Speeches

  • MICHIGAN Gov. Gretchen Whitmer presented her budget that reflects her priorities from her State of the State address. It includes accelerating the implementation of universal Pre-K, free community college tuition for Michiganders, and a tax credit for family caregivers for elderly family members or children with special needs.
  • OKLAHOMA Gov. Kevin Stitt called for major personal income tax cuts during his State of the State address. His repeated calls for tax cuts have not recently been taken up by the Oklahoma Senate, who prefer more careful consideration of available resources. However, tax cuts remain of interest to the legislature where they are considering repeal of the state’s consumption tax on groceries, a measure Stitt has indicated he would sign. The governor also pushed back against the state’s tribal nations as they attempt to see the US Supreme Court’s decision in McGirt v. Oklahoma enforced in both criminal justice and the tax code.
  • PENNSYLVANIA Gov. Josh Shapiro delivered his budget address that includes reforms for education funding, legalizing marijuana, and increased public transit funding. Following a state court ruling that the state’s public school funding system is unconstitutional, Shapiro proposed a $1.1 billion increase for K-12 education, including $872 million to address the court’s ruling on the education system’s chronic underfunding and inequity of certain districts. Shapiro’s budget proposal estimates that a 20 percent wholesale tax on cannabis would generate $157 million for the 2026-2027 fiscal year. He also proposed regulating and taxing skill games which would generate an additional $150 million.
  • TENNESSEE Gov. Bill Lee proposed a $1.4 billion retroactive business tax cut in his February 5th State of the State address. Justified by legal exposure, Lee proposes removing the state’s longstanding dual structured franchise tax where firms owe taxes on the larger of two bases: real property in the state or net worth. Although neither refunds nor repeal are legally necessary, Lee proposes a massive backwards looking cut. The speech was also marked by a major school voucher proposal.

State Roundup

  • KANSAS state tax revenues for December were 6.5 percent lower than originally projected. The cooling of state revenue collections comes as the state debates multiple tax cut proposals, including a flat tax, homestead exemption changes, exempting Social Security income, and more.
  • The MISSOURI House gave initial approval to a suite of modest tax proposals aimed at supporting childcare in the state. The credits, supported by Gov. Mike Parson, would aim to start filling the state’s substantial lack of available affordable and quality childcare. However, they are unlikely to fill much of the gap. The proposals would provide credits for donations to childcare facilities; employer spending on childcare; and childcare facility employer withholding tax and 30% of capital expenditures. No proposals fund childcare facilities directly.
  • MICHIGAN lawmakers introduced legislation to replace the state’s previous tax credit for the film industry, which was eliminated in 2015. The legislation would create a transferable tax credit voucher that aims to keep the credit within the state.
  • It’s been a rough few weeks for NEBRASKA Gov. Jim Pillen and his allies seeking to hike regressive sales taxes to pay for property tax reductions. As we’ve shared here, Nebraskans shunned components of Gov. Pillen’s proposal including creating the highest state sales tax rate in the nation, draining money from funds dedicated to specific purposes, taxing more business and agricultural inputs, and imposing harsh local funding restrictions that would undermine priorities like local infrastructure and public safety. Yesterday, opposition again outweighed support for a bill to raise the regressive state sales tax from 5.5 percent to 6.5 percent.
  • ILLINOIS legislators are considering changes to the state’s estate tax to accommodate family farms who pay the tax when passing land down to family members.
  • VERMONT legislators are working to head off an upcoming statewide property tax increase of $250 million due to increased education spending, the loss of federal pandemic funding, and inflation. Lawmakers were also considering reforming Act 127, which contains a provision that allows local school budget writers to increase their budgets without directly increasing property tax rates.
  • VIRGINIA lawmakers voted against advancing legislation that would eliminate the state’s car tax, which was included in Gov. Glenn Youngkin’s budget proposal. Currently, the state reimburses $950 million to local governments that rely on the car tax for a portion of the revenue they lost from its partial repeal in 1998. The legislation, estimated to cost between $2.5 billion and $3 billion, would eliminate the car tax and cover the local lost revenue.
  • Housing advocates in Seattle, WASHINGTON, are working toward a 5 percent tax on “excess compensation” – defined as payroll expenses that exceed $1 million for any particular employee – to fund affordable publicly subsidized housing.
  • WEST VIRGINIA House members have taken preliminary steps to advance a corporate tax credit for firms that hire West Virginians going through drug court and in recovery. The credit—worth $2,000 per employee up to a max of 7 per employer—aims to contribute to the state’s efforts to fight drug use and addiction.

What We’re Reading

  • Stateline reports on efforts nationwide to enact or improve on progressive real estate transfer taxes, also known as real estate excise taxes or sometimes “mansion taxes.” Seven states and 16 cities and counties have enacted such taxes so far, and many others are actively considering similar policies. The people of Chicago, Illinois, will vote on such a proposal this March, for example.
  • The California Budget and Policy Center points out that California’s budget deficit can be closed by both spending cuts and new revenue. Pointing to past work, the case is made to remove costly tax breaks that benefit California’s wealthiest residents and most profitable corporations.

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